Most will have heard the well coined phrase that there are two things certain in life, death and taxes. Sadly true! Also true for many of us is that we’re probably worth more dead than alive. How? Well, if you have a life assurance policy, it has no value while you’re alive and only pays out on your death.
When taking out a life policy most do so to ensure that those they leave behind have some money, perhaps to pay off the mortgage, or to provide for a child’s education, or maybe even just to make sure their loved ones have a few quid put away for a rainy day.
What many may not realise is that any life policy, unless written into trust, forms part of your estate and therefore swells the estate value on death and could increase any Inheritance Tax (IHT) liability your beneficiaries will have to pay. Given that anything over your nil rate band (£325,000 in the current tax year) attracts a 40% charge, the IHT cost of a policy value of just £100,000 could equate to an eye watering £40,000 IHT bill. I bet there are a few people reading this that didn’t know that when they took out their life cover.
You can protect that sum very easily by asking the insurance provider to write the policy into trust and nominate an individual, or group of individuals, as beneficiary. This not only ensures the policy value does not form part of your estate when you die, and therefore will not attract a charge to IHT, it could also speed up the process by which your beneficiaries receive the money as it is paid to them directly, outside of your estate, and will therefore not be subject to probate which can take anything up to a year.
If you’re not sure what to do, give me a call for a free chat.
This information provided in this article is not intended to constitute legal advice and each relationship breakdown requires careful consideration in our view by a fully qualified Solicitor before decisions are made and before you embark on a certain course of action.
Nino Cuffaro – Wills, Trust and Probate
T: 020 7183 1485