Life Insurance, written into trust

Mands

About 25 years ago I took out life insurance, around the total of my mortgage, and had the policy written into trust. The logic was that the policy would bypass my estate resulting in a quicker payout in the event of my death.

The beneficiary of the policy/trust is now dead and the insurance company tell me there is little that can be done and that it falls to me to take legal advice regarding next steps.

It is an absolute (bare) trust.

The company tell me that the, deceased, beneficiary is the beneficial holder of the policy and therefore I have no legal right to re-assign it. Should I die the policy would pay out to the beneficiaries estate. I am the sole beneficiary of their estate so the money would come back to my estate and form part of it for IHT purposes.

My options appear to be:

1. Do nothing and leave a mess for my executors to clean up, plus a hefty IHT bill
2. Cancel the policy and re-insure with someone else. The old deal is exceptionally good, a new policy would cost me *10
3. Cancel and be without insurance

Am I missing anything here?

TIA,

Mands

Woodstok2000

Seems about right to me. Once you set up the trust, the policy no longer belongs to you (hence no IHT due).

I would suggest seeking financial advice, there probably are things you can do to minimise any tax liabilities, even if they can't be avoided altogether. This would also allow you to take option 1 (the best option) but minimise the mess for your executors.

XRS200

Do you still have a need for life assurance?

Keep_pedalling

I can’t see the problem with your estate having to pay out more IHT as your beneficiaries still end up with 60% of the payout so they don’t lose anything.

Mands

https://forums.moneysavingexpert.com/discussion/comment/82027948#Comment_82027948

Actually, the administrative burden on the executors bothers me more.

Mands

https://forums.moneysavingexpert.com/discussion/comment/82027924#Comment_82027924

No.

But it's such a sweet deal (£13/month for £150k) that it seems madness to give it up.

Woodstok2000

Not necessarily. If the money would have ultimately ended up with them anyway they'll now potentially lose IHT twice instead of just once. It all depends on estate values and the various other rules and exemptions though.

Mands

https://forums.moneysavingexpert.com/discussion/comment/82027921#Comment_82027921

It seems I did not truly appreciate what I was getting into here. And, at the time, had no IHT liability.

I'm doing a wider review of financial planning so I'll roll it into that. At least I know where I stand with this.

Many thanks.

Woodstok2000

Administratively it shouldn't be a huge additional burden, they'll already be doing a lot of work as executors anyway.

Thinking about it further, might it be possible to have a deed of variation put in place to divert the insurance benefit directly to your beneficiary?

QrizB

https://forums.moneysavingexpert.com/discussion/comment/82027968#Comment_82027968

How old are you now? How many more £13s do you expect to pay? Is there an age at which the policy ends?

Mands

https://forums.moneysavingexpert.com/discussion/comment/82028073#Comment_82028073

Mid 50s with parents and grandparents who have tended to live to mid 80s & mid 90s.

If I make it to 85 then it's another £3k of premiums.