Life Assurance plans are normally taken out to protect a mortgage balance or provide cover for family protection.
Only 5-6% of policies are written in trust.
Why write a policy in Trust?
>> It’s free <<
>> May save inheritance tax – you can avoid inheritance tax of potentially 40% by writing your policy in trust <<
>> Avoids probate delay – on a claim, payment is made immediately without probate delay which be around 6 months <<
Mrs X has an estimated estate of £570,000. She is widowed and wishes to leave everything to her son. Included in the estate is a life policy for £250,000 not written in trust.
£570,000 - £325,000 inheritance tax threshold = £245,000 taxed @ 40% = £98,000 tax liability to be paid by the beneficiaries.
If the policy was written in trust for her son, the Life Company pays her son, the beneficiary, direct and the sum insured of £250,000 is not part of the estate, which means that estate is now £320,000 and there is no tax liability.
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