Insurance claim before or after probate?

williamIV

Hi
 
My partner passed away recently and I'm processing the Probate/IHT etc myself. I was going to proceed with figures based on tenants in common, ie calculations of assets and liabilties (main mortgage) based on 50% of everything. From my calculation the estimated estate value is below the £325000 threshold.

Before I do , I thought I better had check. There is an insurance policy that we have in place that pretty much pays the mortgage off. Does it matter when I cash in this policy? does it have any bearing whatsoever on the probabte/IHT forms? 

I ask because if I cash in the policy first then do I then need to say on the probate/IHT forms that the mortgage is now zero? This could then mean that the estate value increases to over the £325000 threshold. But then if life assurance is not part of the estate or should not be taxed in all/most cases then this doesnt sound right.

TIA.

Alter_ego

Who is the beneficiary of the insurance policy?

Sarahspangles

If the policy pays out in trust to a beneficiary then it doesn’t form part of the estate.  You’d have to check how the policy was set up.

When you say you are proceeding on the basis that figures are ‘tenancy in common’ that’s a specific term applying to how you held the house.  It’s important to check this as it does determine what you put on the form.  It’s not a good idea to say other assets were joint or 50/50, such as savings account, if that’s not reflected in the way in they were set up. 

williamIV

The property is held as tenants in common meaning that we both own 50% each. And the mortgage owed is also shared equally, it's those figures that most of the IHT estate valuation is based on because savings, pension, other assets etc is next to nothing really. 

The insurance policy is one of those that we took out for the mortgage, it should be payable to the surviving person to enable that person to pay off the mortgage.

Therefore I am the beneficiary of the policy.

Sarahspangles

williamIV said:

Therefore I am the beneficiary of the policy.

Then it isn’t part of your partner’s estate.

DullGreyGuy

williamIV said:

The insurance policy is one of those that we took out for the mortgage, it should be payable to the surviving person to enable that person to pay off the mortgage.

Therefore I am the beneficiary of the policy.

"It should be" is a little imprecise, I'd personally be checking for a definitive answer.

Keep_pedalling

Call the insurance company if they are happy to pay out without the need for probate then you can make the claim now and it will confirm that it is not part of his estate. Mortgage protection policies are usually written in trust.

Did your partner leave you their share of the house?

williamIV

Keep_pedalling said:

Call the insurance company if they are happy to pay out without the need for probate then you can make the claim now and it will confirm that it is not part of his estate. Mortgage protection policies are usually written in trust.

Did your partner leave you their share of the house?

Yes we have mirror wills and it is written that the surviving partner inherits the other persons estate. I'll ring the insurance company to see what they say.

williamIV

So the insurance company does pay out to me , but only half amount is used for IHT purposes they said. As the policy was in our joint names? Probate not needed.

So to the original question, how does does this affect the IHT because if the insurance policy is claimed before probate/IHT, then the figures I use for the estate calculation changes.

I'm not sure how exactly, do I reduce the estate liability ( mortgage amount)? Or add the insurance payout (or 50% of it) to the estate valuation?

Jowwie

Sorry for your loss.

Not answering your questions but just flagging that if there is a house involved there may be up to £175k nil rate property band to include in addition to the £325k limit that you mention.

Keep_pedalling

Jowwie said:

Sorry for your loss.

Not answering your questions but just flagging that if there is a house involved there may be up to £175k nil rate property band to include in addition to the £325k limit that you mention.

No that only apply if property is left to direct descendants.