Life Assurance in Trust

brad_s_uk

Hi,

I'm hoping for some help regarding putting our life assurance under trust. I've tried to write this in a way that has the facts to ensure it is as easy as possible for somebody to offer help without having to pick through the text.

Our situation:-
Myself and partner - not married
Partner has son who is now over 18
We also have joint son who is only a toddler

Thinking of taking out the following policies:-
Joint policy - decreasing - to cover the mortgage sum owed
Single level term policy for myself
Single level term policy for partner

What we want to achieve from the policies:-
Joint mortgage policy - To pay off the mortgage debt if either of us dies
Single policies - Provide financial support for the remaining partner or to our sons if both of us die

So the only bit I am unclear on is the technicalities of the trusts.

Mortgage Policy

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My understanding is that we wouldn't write this under trust as its mortgage related. But then who does it get paid to and who would actually go about paying off the mortgage.
If one of us was to die then would this money automatically go to the remaining partner (remembering we are not married but would be joint policy holders) and would this therefore count towards IHT as not under trust?
If both of us were to die then who would this go to? Our estate(s)? If so then shouldn't this also be in trust to avoid IHT?

Single Policies

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We would want this to work so that the policy is paid to the remaining partner if living or otherwise split equally between the two sons we have between us.

Therefore, would we each be primary beneficiaries on each others trusts along with our sons but the wording specifying that our sons get an equal share unless the other partner is living, in which case the partner receives the absolute benefit?

Finally, is there any complication because one son (my partners) is over 18 and the other (both of ours) is (currently) under 18? If we both died and the benefit was paid equally to them both, would the eldest just take his half whilst the other half would be controlled by the appointed trustee for the benefit of the youngest until he reached 18?

Thanks in advance for any help anybody can provide. For the record, we are visiting the solicitor to bring up to date wills once we move so may discuss this with him but want to get things straight in my own head.

Thanks

brad_s_uk

brad_s_uk

Anybody able to help on even part of my query?

CFC

Some life policies will allow the policy to be written in trust ie the money goes directly to the named party. Your introducer/broker should be able to advise you if this is what you want.

brad_s_uk

Thanks. That is what I want and I am aware it is possible.

I am just looking for some help/confirmation on the technicalities of the trusts to check I have the beneficaries etc set correctly for what I want to achieve.

localhero

Tell life company proceeds to a) make a will leaving property to a) subject to mortgage. A then receives the proceeds directly and is not part of the deceased's estate for IHT. Pays the mortgage etc with the money.

Also tell life company if a) has predeceased then to b + c in equal shares. They do have discretion but they generally carry out your wishes. Any beneficiary under 18 will have to wait to receive their share.

The same works for any death in service benefits attached to a pension. Notify the trustees who you have appointed and it works in the same way i.e. not through the Will.

rob2304

I know this is an old post but my situation is almost identical to OP so didn't see the point in posting a whole new post.

I think OP questions were only half answered at the time so wondered if anybody is able to answer any more of the questions OP asked at the time. Or if OP can let me know what you did in the end, that would also be good.

Specifically for the mortgage policy, questions I have an interest in (bold bits in particular) :-

(1) If one of us was to die then would this money automatically go to the remaining partner (remembering we are not married but would be joint policy holders) and would this therefore count towards IHT as not under trust?
(2) If both of us were to die then who would this go to? Our estate(s)? If so then shouldn't this also be in trust to avoid IHT?

And for the personal policies, the technicality of who the beneficiaries should be set to :-

(3) Therefore, would we each be primary beneficiaries on each others trusts along with our sons but the wording specifying that our sons get an equal share unless the other partner is living, in which case the partner receives the absolute benefit?

Thank you

lisyloo

If one of us was to die then would this money automatically go to the remaining partner

Someone should be specified as the beneficiary on the policy.
If you aren't married then you should get a will done.
My personal opinion is that it's best to pay a solicitor for this as the consequences of getting it wrong are huge, but it's down to personal choice. Some people chose to use on-line services or write their own.
If you aren't married and it's not in trust then yes I believe it would count as part of your estate and count towards IHT.

If both of us were to die then who would this go to?

If you have wills then it will go to whoever you have specified.
If there is no will then it will follow the rules of intestacy, which may or may not give you the desired result.
It's important to note that the intestacy laws are quite traditional and don't recognise unmarried partners so the money will go the way of family and not your partner. This is why you need to get wills if you don't have them.

If you were to die together (in many cases defined as 28 days which gives time to die from injuries in the same accident) then you would have 2 estates.
However if one survives the other then the second person could have a large estate.
Sometimes trusts are used on first death to prevent a huge estate (and IHT) on a second death. So, for example 50% of a house can be put in trust on first death but it doesn't actually get sold until the 2nd death.

Our estate(s)? If so then shouldn't this also be in trust to avoid IHT?

If the estate is large enough.
Add up everything you have including house, savings and any lump sums from pension funds if you die befire retirement (as you get old the pension funds can become significant).So, yes it's a good idea to plan this in advance.

Therefore, would we each be primary beneficiaries on each others trusts along with our sons but the wording specifying that our sons get an equal share unless the other partner is living, in which case the partner receives the absolute benefit?

That sounds like it makes sense.
You might also want to consider putting 50% of the house in trust for the sons on first death, but allows use of the house until second death.
On second death it passes to the sons and bypasses the 2nd estate completely.
I'm not sure what happens if the survivor wants to move and that's the sort of thing you need to get advice on to amke sure all consequences are considered.

gfm198

My scenario is I have a partner (therefore unmarried!) and we have a two year old daughter.

My complication is the family home is in my name as well as the mortgage. Value £225k, mortgage outstanding £45k. I also have a buy to let property value £180k, mortgage £70k, again ownership and mortgage in my sole name. I have savings of £40k. As you can work out I'm about on the limit for IHT.

A recent complication is both me and my partner have just taken out single life assurance of £300k each. We intend to put this in trust. If she dies it's straight forward the money goes to me. However, confusion rains if I put mine into trust to my partner. What happens about the mortgages and therefore the family home and buy to let properties? Obviously both properties are left to my partner in my will.

Any advice would be greatly appreciated.

jonnyb

I am not an expert at all, but here is my opinion. If the insurance is put into trust, that makes it exempt from your estate for IHT. The money would be paid to your partner, as the named beneficiary of the insurance policy.

The properties would go to her, as dictated by your will. However, the banks that have the mortgage on the properties would still retain an interest, and the mortgage would still be in force. Your partner would have to choose whether to continue paying the mortgage off as you were, or to use the insurance money to clear the mortgages in one go.