What to do with a whole of Life Policy Insurance Payout

dawsonna

We (family of 4 - mother, father and 2 sons still living) have a Vitality Whole of Life Policy that will likely soon payout on my fathers death - he is suffering from Parkinson’s and is now weeks/days away from end of life.  The policy is due to payout £250,000 in on his death.

As the immediate family we wanted to get clear on our options.  The initial intent of the policy was set up to pay inheritance tax on the family estate as it will be over £1M on the death of our mother.  Given the policy is close to payout, we wanted to understand whether the cash proceeds can instead be simply gifted in whatever proportion we decide - ie. Gifted by my mother to myself and my brother.  So for example the cash may get split 3 ways - 1/3, 1/3, 1/3 between mother and 2 sons.  What are the general rules around doing such, and is the gifting to the sons subject to inheritance tax assuming not living for a further seven years?

Any advice/experience gratefully received.

Thanks.

dunstonh

How is the Vitality plan set up?  i.e. is it in trust? or life of another (where your father is the life assured but the policyowners are different)

Given the policy is close to payout, we wanted to understand whether the cash proceeds can instead be simply gifted in whatever proportion we decide - ie. Gifted by my mother to myself and my brother.

Who gets the money will depend on how it is set up and possibly what it says in his Will.   The beneficiary is free to gift money as they wish. However, there may be IHT issues that linger for up to 7 years after on that gift.

user1977

If the beneficiaries are in agreement then you can vary the Will as you wish - so it wouldn't be a gift by mum, but instead an inheritance directly from father to sons. How long mum lives isn't then an issue. That bit's probably more for the deaths/probate board though.

SiliconChip

I'd suggest that for the sums involved and the slightly complicated intentions then a consultation with a solicitor at a relatively early stage might be money well spent.

dawsonna

Many thanks for your responses, most helpful.  The policy is in a trust with my mother as the 100% beneficiary.  It sounds like it might be wise to vary the will such that the policy pays out directly as an inheritance from father to sons.

dunstonh

 It sounds like it might be wise to vary the will such that the policy pays out directly as an inheritance from father to sons.

If the policy is in trust, then it is not captured by the Will.  It is outside of his estate.  It will form part of your mother's estate though.  So, it will be treated as a gift to the children and captured under the 7 year rule, unless the amounts involved can be captured under income (which may not be feasible or may take a number of years to get to the amount required)

dawsonna

Thanks - Would it be possible to change the trust wording such that the beneficiaries are adjusted to the mother and two sons in appropriate %’s and not 100% to the mother as it is now.