Life Assurance in trust

MaxiRobriguez

Hello -

I'm looking for new life insurance for my wife and I (two separate policies) now we've had our first son, with the intention that should one of us die unexpectedly a payout will  allow the other to look after him without having to work, and specifically I'm now trying to wrap my head around whether there's a need to put both in trust in order to avoid potential IHT but despite thinking myself reasonably intelligent I just can't work out the necessity. Can anyone help?

Looking to take out 2x level term policies to last the next 15 years each which would pay out £300k in the event.
Assets are as follows:
- House, in my name currently only - worth £275k ish, remaining mortgage £130k. Likelihood is we will move to a ~£400k ish house soon, with £275k-£300k mortgage and when we do that my wife will also be named on the property.
- Offset mortgage cash in my name: £70k (this will either be used to fund new house or push to S+S ISA depending)
- Stocks and Shares ISA in my name: £65k (contributing £7.5k annually)
- DC Pension in my name: £110k (contributing c.£25k annually, project to be nearer £750k by end of 15 years)
- DC Pension in wifes name: £5k (contributing c.£5k annually, projected to be nearer £100k by end of 15 years)
- DB Pension in wifes name: Not sure of value but the end payout is 54'ths career average earnings and she's got 8 contribution years so far. Avg salary to date about £35k.

My projection is that our family assets will breach £650k in the next 6 years. 

On top of that as well, both of our employers also pay out if either of us die. My employer would pay out £100k and my wife's employer would pay out £60k ish.

So - is there a need for putting the life insurance policies in trust? My head says yes but would appreciate any thoughts. Thank you in advance.

tacpot12

There is no reason not to put the policies in trust. You are right that at present there is no real need to do so, but if you do it now, then it is done and you don't need to worry that you will forget to do it.

HappyHarry

If it is not a joint policy, then using a trust is generally best. This avoids the need to wait until probate has completed before your wife can get her hands on the proceeds.

In addition, if you did not have a will, your wife may find that some of your life assurance goes to your children rather than her.

Just a couple of other comments;

Your estate will benefit from the Residence Nil Rate Band, adding £175,000 to your current Nil rate Band total of £650,000, This will increase by another £175,000 when your wife's name is also on the new property. 

You need to have a will in place.

The death in service is paid outside of your estate, and will probably go directly to the surviving spouse. An expression of wish form will help expediate this.

dunstonh

You could write the policies one life of another basis.  That avoids the need for a trust.  i.e. owner1 with life assured 2 and vice versa.

My projection is that our family assets will breach £650k in the next 6 years. 

That is a significant increase in a short period from your current position (unless you are including pensions, which you shouldn't as they don't form part of the estate)

MaxiRobriguez

Thanks all for your comments, really helpful as always.

Last question - Is there any reason for/against writing policies one life of another instead of insuring ourselves in trust?

Weighty1

MaxiRobriguez said:

Thanks all for your comments, really helpful as always.

Last question - Is there any reason for/against writing policies one life of another instead of insuring ourselves in trust?

If you both died in an accident together then a "life of another" policy would enter the estate and be calculable for IHT, a plan in trust wouldn't.  Also, a plan in trust can have the beneficiaries changed (providing you use a flexible.discretionary trust) so if you and your wife ever separated and you started a new relationship you could, if you wished, make them a potential beneficiary of the trust proceeds.