Life policy and making a will after divorce

Sheila_Armstrong

Hello
I’m seeking advice on writing my will following a divorce. We have 2 daughters aged 9 and 12 who live with me in the family home. We have an outstanding mortgage and the order says my ex and I are now tenants in common. The house split is 1/3 to him, 2/3 to me, when I have to leave and sell in 9 years.

We currently have a life policy that pays out to me in the event of my ex husbands death or incapacity. My ex is suggesting that we adjust the life policy so the proceeds, in the event of death, are put in trust. This is because now that we are divorced, the pay out would – if not put in trust – go into the estate of the deceased and attract inheritance tax (at 40%). So the recipient, ie me if he dies, immediately loses £140k. My ex suggests putting this in trust is straightforward, subject to just one thing –that I make him (my ex) the beneficiary rather than the children. He gives the following advantages of doing so:

1. That it reciprocates what he is doing for me (which was agreed in the divorce settlement). But we forgot that the life policy also pays out if I die, and so made no provision for that in the divorce settlement/court order.

2. It would be administratively easier because we are just copying each other.

3. In the event of my death, the fact that it goes direct to my ex means he can then use it to just do what we always intended, which is pay off the mortgage (so the person dealing with the death at least has a mortgage free property). Otherwise he would have to go through whatever trust has been set up for the kids , and have a process of discussion about what to do.

The ownership of our house will remain unchanged. The result would be that the house was mortgage free, but owned 1/3 by him and 2/3 whoever I put in my will – which would be my daughters.

In summary: (1) we need to put it in trust – he says I should just agree that and (2) he wants me to make him beneficiary, as he will me; but if not then (3) make it the children.

I’m not sure I fully trust him to make him beneficiary. But more so if he were to remarry or become mentally unable to make decisions (and a new partner is then doing so for him and potentially alienates my children) then it could pose a problem, I think. I suggested that the children are the beneficiaries but he’s the Trustee. And I have my brother and sister as Executors of the will. He is going to get advice on this but wants to check if he’s the Trustee, that the childrens’ interests were represented by the mortgage being paid off, and the rest could then stay in a fund or something. The problem, however, might be if the insurance company did not permit something more complicated like that. Then we would have to do it via the wills, which he says means setting up a discretionary trust – just for that portion – which would be expensive.
Thanks

Yorkshireman99

Sheila_Armstrong wrote: »

Hello
I’m seeking advice on writing my will following a divorce. We have 2 daughters aged 9 and 12 who live with me in the family home. We have an outstanding mortgage and the order says my ex and I are now tenants in common. The house split is 1/3 to him, 2/3 to me, when I have to leave and sell in 9 years.

We currently have a life policy that pays out to me in the event of my ex husbands death or incapacity. My ex is suggesting that we adjust the life policy so the proceeds, in the event of death, are put in trust. This is because now that we are divorced, the pay out would – if not put in trust – go into the estate of the deceased and attract inheritance tax (at 40%). So the recipient, ie me if he dies, immediately loses £140k. My ex suggests putting this in trust is straightforward, subject to just one thing –that I make him (my ex) the beneficiary rather than the children. He gives the following advantages of doing so:

1. That it reciprocates what he is doing for me (which was agreed in the divorce settlement). But we forgot that the life policy also pays out if I die, and so made no provision for that in the divorce settlement/court order.

2. It would be administratively easier because we are just copying each other.

3. In the event of my death, the fact that it goes direct to my ex means he can then use it to just do what we always intended, which is pay off the mortgage (so the person dealing with the death at least has a mortgage free property). Otherwise he would have to go through whatever trust has been set up for the kids , and have a process of discussion about what to do.

The ownership of our house will remain unchanged. The result would be that the house was mortgage free, but owned 1/3 by him and 2/3 whoever I put in my will – which would be my daughters.

In summary: (1) we need to put it in trust – he says I should just agree that and (2) he wants me to make him beneficiary, as he will me; but if not then (3) make it the children.

I’m not sure I fully trust him to make him beneficiary. But more so if he were to remarry or become mentally unable to make decisions (and a new partner is then doing so for him and potentially alienates my children) then it could pose a problem, I think. I suggested that the children are the beneficiaries but he’s the Trustee. And I have my brother and sister as Executors of the will. He is going to get advice on this but wants to check if he’s the Trustee, that the childrens’ interests were represented by the mortgage being paid off, and the rest could then stay in a fund or something. The problem, however, might be if the insurance company did not permit something more complicated like that. Then we would have to do it via the wills, which he says means setting up a discretionary trust – just for that portion – which would be expensive.
Thanks

You need urgent, paid for, professional advice. You cannot afford to rely on advice from here however well intentioned.

Dox

Sheila_Armstrong wrote: »

We currently have a life policy that pays out to me in the event of my ex husbands death or incapacity. My ex is suggesting that we adjust the life policy so the proceeds, in the event of death, are put in trust. This is because now that we are divorced, the pay out would – if not put in trust – go into the estate of the deceased and attract inheritance tax (at 40%).

Have you checked this for yourself, rather than relying on what your ex is telling you? From the sound of it this isn't a straightforward life policy but possibly a critical illness policy taken out in conjunction with life cover. Possibly the simplest thing to do is cancel and take out a different policy (or policies) - just watch out for any termination charges/exclusions on a new policy.

Otherwise get proper advice (i.e. paid for, from a professional who has all the facts and has seen relevant documents) - with so much at stake, not least for your children, who on earth would you not do so?

Brynsam

Sheila_Armstrong wrote: »

I’m seeking advice on writing my will following a divorce.

The solicitor who handled your divorce should be able to advise.

Keep_pedalling

Your husband is absolutely correct about the need for any such policies being written in trust now that you are no longer married. He does not seem to be suggesting any other change than that, as the policies will already pay out to to surviving policy holder.

I am not sure if you can make such changes to a policy mid way though the term, but even if you can you have to asses whether a joint policy is still fit for purpose for you and your ex or whether you should be looking at alternative individual arrangements.

On the numbers you give it sounds like it will pay out £350k and you both have assets of over £325k so yes both of you should take advice.