Top Life Insurance Policys at risk of Big Inheritance Taxes.
In a recent study undertaken by Legal and General, it has been revealed that over 90% of it’s customer base who have whole life policies have put nothing in place to safeguard themselves against inheritance tax.
The current inheritance tax threshold in the UK is ?325,000 with anything above this amount being liable to a rate of 40% tax. However, there is a simple way of protecting your money, which many are unaware of. When a person with life insurance dies, the lump sum that is received from the policy for their estate is automatically liable for inheritance tax if it is over the ?325k threshold. By simply writing the life insurance policy into trust, the sum that is paid out upon death is paid directly to the trustees rather than the legal estate. This ‘loophole’ results in the proceeds not needing to be taken into account when the inheritance tax is calculated.
Contact your provider to discuss whether you can put your policy, be it a single or joint policy, into trust by creating a trust deed. Most providers should be happy to do this for you and there is usually no extra charge to do so. The deed will contain all of the terms under which the trust can operate including who you intend to take on position as trustee, who you would like to benefit from the trust and also how much each beneficiary will receive. Make sure you choose someone who knows what they are doing and someone you can rely on as your trustees, because they will take on the responsibility of looking after your policy and will be in charge of sharing out the proceeds. One thing you must be aware of is that placing a policy in trust is an irrevocable act, so always work through your options carefully and consider everything before you commit to anything. If you do decide to place your policy in trust, also bear in mind that some providers will allow a small amount of flexibility within the finer details of the trust, for example some may allow you to change the names of your beneficiaries, whereas others will not.? Again, think through everything and read everything thoroughly before committing.
In 2014, ?530 million was lost to inheritance tax, a figure which has risen by about ?58 million since 2013, and something which could have been prevented had more policy’s been placed in trust. Perhaps more concerning is that the risk is even greater for unmarried couples as UK law does not grant this group as many privileges as married couples. Figures from the Office for National Statistics shows that 12% (5.3 million) of the population in the UK are living under the title of unmarried couples. Any assets shared by unmarried couples, including houses and protection policies, are only based on their individual allowances.? This in turn is likely to increase the surviving partners allowance over the inheritance tax threshold. Whereas, had that same couple been married they would be entitled to make use of each other’s tax free allowance.? Any part of the tax free allowance which wasn’t used up upon the first death can be carried over to be used upon the second person’s death, which means that the surviving partners estate can be worth anywhere up to ?650,000 before inheritance tax is due on it.
Check through your life insurance policy today and see whether it is worth you putting your policy into trust.? You could be saving your loved ones thousands of pounds, ensuring they lead a financially secure and stress free life after you have gone.
