When it comes to safeguarding your family's future and ensuring that your legacy is passed on as intended, life cover emerges as a strategic tool in inheritance tax planning. Not only does it provide financial security to your loved ones, but when structured correctly, it can also cover or significantly reduce the inheritance tax (IHT) liability your estate might face. Let's delve deeper into the types of policies available and the importance of placing them in trust.
Term Life Insurance: This policy lasts for a set period, paying out if you die within this term. It's a straightforward protection tool, ideal for covering specific liabilities that decrease over time, such as a mortgage.
Whole of Life Insurance: Unlike term insurance, whole of life cover ensures that a payout will occur no matter when you pass away, as long as premiums are kept up to date. This makes it particularly suitable for IHT planning, as it guarantees funds will be available to cover the tax bill, regardless of timing.
Joint Life, Second Death Policies: These are designed for couples and pay out on the second partner's death, which is typically when the IHT liability arises. This timing aligns well with the need to settle IHT bills without putting financial strain on the surviving partner.
Placing your life insurance policy in trust is a pivotal step in inheritance tax planning. This strategic move has several benefits:
Immediate Payouts: Funds from policies written in trust are usually available to beneficiaries much quicker than those going through probate. This means your loved ones can access the funds when they most need them, potentially to settle IHT bills promptly.
Exclusion from Your Estate: One of the most significant advantages of writing your life insurance policy in trust is the exclusion of the policy's payout from your estate for inheritance tax purposes. This strategic move addresses the concern of inheritance tax on life insurance by ensuring that the entire sum bypasses your estate, thus not subject to IHT. Consequently, the full amount of the policy payout goes directly to your beneficiaries, free from the potential burden of tax liabilities. This careful planning ensures that your intended financial support reaches your loved ones without being diminished by taxes.
Control Over the Funds: Trusts allow you to specify how and when the proceeds from the policy are distributed among your beneficiaries. This can be particularly useful for ensuring that minors are taken care of or that the money is used in a way that aligns with your wishes.
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Note: This page is for information purposes only and should not be considered as financial advice. Always consult an Independent Financial Adviser for personalised financial advice tailored to your individual circumstances.