Joint life insurance with parent (Trust)

kp127

I have a joint (first life) life insurance (no critical illness benefit) with Zurich with my mum to cover a joint mortgage. I added myself to the mortgage as she was not able to obtain the mortgage amount on her own due to her age.

I wish to place the policy into trust to avoid potential IHT, but the Trust document on Zurich website suggests that it would be paid out to me if I outlive her by 30 days (which would mean it is part of her taxable estate). If I die within 30 days, then the policy is put into trust.

Does anyone have any experience / advice? Thank you in advance.

dunstonh

I wish to place the policy into trust to avoid potential IHT,

How would it avoid IHT?

Joint ower policies pay to the surviving owner and do not pay to the estate. The debt and life assurance cancel each other out.

kp127

Thanks for your comment dunstonh. If my mother passes away, and the life insurance pays out, would that not be part of her estate, as she would be passing it to me (her son)?

Apologies if this is a silly question.

dunstonh

Thanks for your comment dunstonh. If my mother passes away, and the life insurance pays out, would that not be part of her estate, as she would be passing it to me (her son)?

if she was the sole owner of the policy, it would pay back into her estate. However, on a joint owner policy, it is paid directly to the other policyholder and does not form part of the estate.

This is why mortgage life assurance policies are rarely placed in trust.

kp127

Many thanks for your reply. One last question, and to be clear, the life insurance was taken out separately to the mortgage for a fixed amount which is slightly higher than the total mortgage (not a decreasing life insurance policy).

There was no stipulation that we needed a life insurance policy for the mortgage but we have taken it out. I presume this doesn’t impact your response?

Appreciate your help.

dunstonh

Even policies that are required as a condition of borrowing are still independent of the mortgage. it makes no difference. (nor does the sum assured amounts or the term of the policy)

The key is how the policy is set up. Joint owner, joint life, first death will pay to the surviving owner directly and not be in the estate.