Level Term Life Assurance - Policy In Trust??

Bloke

I'm thinking about purchasing a level term life assurance policy in joint names for myself and my wife (both 26) covering £250,000 over a 25 year term. I would want the policy to pay out to either of us in the event of one of us dying or in the event of both of us dying to any future children we might have or until that time to a 50%/50% split to our fathers (or if that isn't possible, 100% to one would be fine).

My questions are:

a. Is it possible to do this myself (I have found the policy I want using the Cavendish website)

b. To cover the inheritance tax issue, should I have this policy in trust?

c. If so, is it possible for me to form this trust myself without the need to consult an IFA? I've had a look at some example wording for trust forms and it seems they have to be written in a very 'legal' for want of a better word terminology, and am afraid if this is the case that the wording I would be able to use will not be valid if the policy should ever have to be claimed upon.

d. If it's not possible, how much am I likely to have to spend in order for an IFA (or whoever else would have to do it) to fill in the form for the trust?

e. Am I barking up completely the wrong tree? My reasons for choosing this type of policy is to cover any outstanding mortgage payments (currently £180k) and to have a lump sum left over to help out the surviving partner/children. I realise I could get a decreasing cover for the mortgage but the way I see it is that as the mortgage is being paid off, any potential lump sum from this policy would 'increase', this would co-incide with the amount of money needed. eg I die tomorrow, wife gets enough to pay mortgage off plus 70k. I die in say 5 years after which we might have a child, there is more lump sum which will be needed due to having said child. I die in 20 years, more lump sum to pay child through uni, possibly house deposit etc.


Sorry if it's a long post but please help and let me know if I'm thinking along the right lines.

Thanks,

Paul.

Bloke

Anyone able to help?

dunstonh

I can quickly with some of the points but its quick as I am off out shortly...

a. Is it possible to do this myself (I have found the policy I want using the Cavendish website)

Yes.

b. To cover the inheritance tax issue, should I have this policy in trust?

Its usually the best way.

c. If so, is it possible for me to form this trust myself without the need to consult an IFA?

Yes it is. If you know which trust you want to use and the provider of your life assurance has a suitable trust then you can do it yourself. You cannot write your own trust though as it has to be done in a certain way. If the standard trusts are not suitable for your requirements, then you can employ a solicitor to create a trust that does suit your requirements. You would need to verify if the life assurer accepts a custom trust document prior to application though - just in case.

d. If it's not possible, how much am I likely to have to spend in order for an IFA (or whoever else would have to do it) to fill in the form for the trust?

If you arrange the life policy through the IFA, then trust document completion would be dealt with as part of that transaction unless its a complicated trust. If on fee basis, I would expect at least £500 for whole transaction.

e. Am I barking up completely the wrong tree? My reasons for choosing this type of policy is to cover any outstanding mortgage payments (currently £180k) and to have a lump sum left over to help out the surviving partner/children. I realise I could get a decreasing cover for the mortgage but the way I see it is that as the mortgage is being paid off, any potential lump sum from this policy would 'increase', this would co-incide with the amount of money needed. eg I die tomorrow, wife gets enough to pay mortgage off plus 70k. I die in say 5 years after which we might have a child, there is more lump sum which will be needed due to having said child. I die in 20 years, more lump sum to pay child through uni, possibly house deposit etc.

If you dont have children now, there would be no real gain from an IHT point of view but policies in trust do tend to get paid out quicker as they arent held up by all the usual probate etc issues. You can write the trust at the start to include a share with future children (not just based on current situation). Its when you have children that the IHT side starts to work.

rossbenn

As there are no children it does seem at this stage that you dont need to set up a trust if you are prepared to accept the fact that any monies would revert to your estate for IHT. However as Dunstonh says it would pay out quicker in the event of a claim if in trust.
However, you may find it difficult to find an insurance co with a trust that allows you to write a joint life policy in trust if you had to include children at a later stage. The problem being if you were both to die at the same time in an accident or whatever it can cause complications. You can as mentioned have a solicitor draw up a bespoke trust which can be expensive, or take out two seperate policies which would be acceptable to an insurance co.
I do have to ask though, if you need this specialist advice why have you went to Cavendish instead of an IFA who would give you this advice.

maliachammy

I have seen the idea of 'Policy In trust' reccommended on this site before, in order to avoid inheritance tax in the event of a claim and payout. Can anyone explain simply how this works, I am applying for Mortgage Decreasing Life Assurance with Friends Provident and asked the adviser about it when I made the initial phone call about it. They said they can set it up this way.

Is it just a simple process or do you have to set up a trust of some sort yourself to have it paid into?

jasonking

Its a relatively simple process, you can use the standard forms as provided by the insurance company via your adviser or you can consult a solicitor and they will do it all for you. A solicitor will charge you a fee but in return you will get tailored advice and will consider all your other life policies, assets etc and make recommendations (have you made a will?). There are many different types of trust and it is important you understand what you are doing when you use a trust and which one is best. I always recommend a solicitor for this as few IFA's really understand trusts fully.

lolly1963

Hi,
Last month i toook out life cover with legal and general for 50,000 on my own life.
I filled out a trust form supplied by them. My husband is first named and then my only son aged 15 is named second.
This way, as i understand it, if anything should happen to me, then the money gets paid out to the first named on trust, without the money going firstly to the estate, and also is tax free.

jasonking

That sounds broadly correct lolly1963. The detail is normally around what type of trust to use - if you have more children or the marriage breaks up can you add/remove the beneficiaries? Also if you and your husband both die in a car crash does the money pass to your husband (tax free as in a trust) and then onto your son (taxable as not in a trust). Sorry so be so cheery this early in the morning but its the detail that can catch you out and where a solicitor can help with a well written Will. Having said that you have done a lot more than most by putting it into any type of trust so well done!

lolly1963

Hi Jason,
Thanks for your reply. That is something i need to check with L&G with regards if we both should die together.
I wasnt aware of these trust documents until the broker brought it up. Well worth getting correct advice, i would never have known about it with this policy.
Many Thanks.

maliachammy

We haven't written a will yet so will it be a good thing to see a solicitor to do this? HSBC who we're having our mortgage with have offered us a will writing service but I assume this is more basic and maybe cheaper than going to a proper solicitor.

rossbenn

jasonking wrote:

Its a relatively simple process, you can use the standard forms as provided by the insurance company via your adviser or you can consult a solicitor and they will do it all for you. A solicitor will charge you a fee but in return you will get tailored advice and will consider all your other life policies, assets etc and make recommendations (have you made a will?). There are many different types of trust and it is important you understand what you are doing when you use a trust and which one is best. I always recommend a solicitor for this as few IFA's really understand trusts fully.

I reckon that last remark will ruffle a few feathers in the IFA community
Jasonking.