Life insurance pay out

Gizmo1973

Hi I have life insurance with Tom.co.uk and it will pay out on my death to my daughter who is 7 at the moment and lives with her mum, Tom have said if she is under 18 when i die then the money would be given too her mother until she is 18 and obviously I do not want any money going to her, they have said I could get it put in a trust and then when she is 18 she can draw it out but from what I have read on directgov she would be taxed 20% which would be a lot as the payout would be 80k, is there another way that I can do this and not let her mother get hold of any of it or for my daughter not pay any tax.

MeteredOut

Which part of directgov states the trust would be taxed at 20%?

MyRealNameToo

Think you are getting confused and reading the wrong thing on the website. 

The question will be who the trustees will be if you die before she's 18

poseidon1

Gizmo1973 said:

Hi I have life insurance with Tom.co.uk and it will pay out on my death to my daughter who is 7 at the moment and lives with her mum, Tom have said if she is under 18 when i die then the money would be given too her mother until she is 18 and obviously I do not want any money going to her, they have said I could get it put in a trust and then when she is 18 she can draw it out but from what I have read on directgov she would be taxed 20% which would be a lot as the payout would be 80k, is there another way that I can do this and not let her mother get hold of any of it or for my daughter not pay any tax.

 Life policy death claim proceeds held in trust absolutely for a minor, does not attract any tax on the capital amount. However, on assumption the proceeds are invested until age 18 ( which would make sense if still very young), there maybe a possibility of tax on any resulting investment income and or capital gains.

However the child's annual personal income tax free allowances are available to shelter the income together with the annual £3,000 CGT exemptions for capital gains. Therefore on an £80k absolute  trust fund there may only be modest ( if any)  annual tax on investment income/gains.

The main issue for you is if you do transfer the policy to an appropriate policy trust, who would your choice of trustee be to administer her monies until age 18?