Figures from previous tax years show that families who have lost a loved one face up to 40% inheritance tax (IHT) on life insurance payouts.
However this can easily be avoided by writing any policies into a trust. There are many benefits to this type of planning:
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Final payments will not form part of an individual’s estate when they die, so the money is not liable to IHT.
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It will be paid out quicker because families will not have to wait for the estate to be settled through Probate. Sometimes life insurance settlements can take months to be completed – a real problem if their estate still has monthly outgoings like mortgage payments.
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Trusts are really simple to set up as most life insurance companies provide the forms and we can help you complete the paperwork to ensure your loved ones avoid a huge tax liability.
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You can ring-fence funds and ensure they’re protected for the use and benefit of your loved ones, protecting the assets from any other interested party such as ex-partners.
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It is also possible to ensure any money from your pension plans also avoid unnecessary Inheritance Tax.
We urge clients with life insurance policies in trust to check that the terms of the trust are still relevant to the individual’s personal situation. Often policies will have been written many years ago; people may have remarried or changed relationships in that time but never reviewed their trust. If the trust has not been changed, ex-spouses could be set for unintended windfalls if the paperwork is out of date.
As always we are happy to help clients. If you, or anyone you know, is unsure of whether to place policies in trust and wants to know how to do it, then get in touch…