Life Ins, Trust Question?

1jim

Hi
In the process of remortgaging so decided to have a look at life insurance, got a quote from the idol website and price was pretty good, the ifa who arranged the mortgage said that he would also get a couple of quotes for us and if we went ahead with the quote he would put them "in Trust" to reduce the chances of paying inheritance tax. Anyway the quotes he came back with are about £2 a month each more than the idols (with same company). The forms from the idol ask if we want them putting into a trust....
a couple of questions

what is a trust and will it stop inheritance tax?

if we do this trust thing can we do it ourselves and same the £2 extra a month, I know its not a lot but its nearly £50 a year and over 25yrs its a fair sum

thanks
Jim

dunstonh

what is a trust and will it stop inheritance tax?

It allows the proceeds to be paid to a nomited beneficiary outside of the estate for IHT purposes. It can also speed up payment of the funds.

if we do this trust thing can we do it ourselves and same the £2 extra a month, I know its not a lot but its nearly £50 a year and over 25yrs its a fair sum

£2 x 12 = £24 a year.

If you know which type of trust you want (flexible, absolute etc) and know how to write it an appoint additional trustees, then you can.

1jim

dunstonh wrote:

It allows the proceeds to be paid to a nomited beneficiary outside of the estate for IHT purposes. It can also speed up payment of the funds.



£2 x 12 = £24 a year.

If you know which type of trust you want (flexible, absolute etc) and know how to write it an appoint additional trustees, then you can.

Thanks for that, will look into it a little more, for 2 of us (me and the wife) it is £2.00 x 12mths = £24, x2 = £48,
£48 x 20yrs = £960 which is a fair amount to pay but if the work is complex then its a reasonable amt to pay
thanks
Jim

dunstonh

Another way of looking at it is if the life cover was £100k and was liable to IHT, thats £40k which goes to Gordon Brown leaving your beneficiaries with £60k.

Would you rather pay £960 or £40,000?

defender_of_the_weak

Even if you don't pay inheritance tax it is worth the money to avoid probate issues. If one of you dies then the money can be paid in weeks rather than potentially waiting for probate to clear which can take months. Also, if a solicitor is involved in the estate they will spend a fair proportion of this just writing on your behalf

marbella

I am in the process of getting life insurance and putting it in trust for my child as if anything were to happen to me, my child would be liable for a huge IHT bill. I am taking out a hefty life insurance policy to cover this, which in truth I should not have to do, as my late husband worked really hard to give us this legacy.

1jim

so am I right in thinking that if we take out these policies (20year level term assurance) that if one or other or both of us die the money will be passed directly to our children and they wont have to pay inheritance tax?
If this is the case why arnt all life insurance policies written this way?
Jim

dunstonh

so am I right in thinking that if we take out these policies (20year level term assurance) that if one or other or both of us die the money will be passed directly to our children and they wont have to pay inheritance tax?

If in trust to the children, there is no IHT to pay and it doesnt form part of your estate. If not in trust, it goes into your estate and could then be subject to IHT potentially (if not on first death, it would on second).

If this is the case why arnt all life insurance policies written this way?

There are multiple ways of writing a life policy.

Single Life
Joint life first death
Joint life second death
life of another (where owner and life assured are different).

Also, not all policies need to be in trust. For example, normally you wouldnt write life assurance in trust that is to cover a mortgage (although it can still be right to in some circumstances).

clairehi

Having read the advice about writing life assurance in trust, Ive just received the trust form from NU for a term assurance policy.

The form requires you to insert your own beneficiary clause and says that your professional adviser should provide the correct wording for the clause.

However I have applied for the policy via an execution-only IFA website in order to get the maximum commission rebate so I am a bit stuck, and NU will not provide a form of words.

Am I going to have to go tail between legs to an IFA who will provide me with the correct wording in legalese, and end up paying more for the policy as a result.