Life Insurance in trust

Chris6805

Hope someone can help here.

My wife and I have 2 joint life insurance policies, which pay out in the event of either or both of us dying. We have 2 young children and have recently made wills leaving all assets to each other in the event of one of us dying, and to the children in the event of us both dying. The life insurance policies would form the majority of the estate in the event of our death.

We've been getting conflicting advice about whether we need to place the life insurance policies in trust. Obviously if just one of us dies, there is no IHT to worry about. But if we both die, then we don't want the children to get hit with the IHT, so it seems a trust would be beneficial.

But, I understand that, because they are joint policies, neither my wife or I can be beneficiaries if we place the policies in trust. So what would happen if we placed the policies in trust, and then say I died? Would that mean the children would inherit the policies and my wife couldn't?

Would that matter, as my wife would be a trustee and could presumably use the life insurance money for the children's benefit? Does that include paying general living/housing/education expenses for the children? If it does, then that's probably going to be OK, but I don't want to end up in a situation where the children inherit a large sum at 18, having spent the whole of their childhood in poverty because no-one could get their hands on the life insurance money!

Hope that all makes sense, and thanks in advance for any advice offered.

Annisele

Before you start worrying about trusts, are you sure that your estate is big enough for IHT to be charged? In other words, are all of your assets plus the life assurance monies less your debts worth more than £650k?

Chris6805

Yes, the estate will be worth in excess of £650k.

yelf

Chris6805 wrote: »

Would that matter, as my wife would be a trustee and could presumably use the life insurance money for the children's benefit? Does that include paying general living/housing/education expenses for the children?

Yes it does. There should be no issue putting the policies in trust. Trusts arent just used for IHT: they ensure the sum assured can be paid out without waiting for probate. Ring the life companies are ask for discretionary trust forms.