When you pass away your life insurance proceeds form part of your estate.
If your estate exceeds £325,000 you’ll have to pay 40% inheritance tax (IHT) on the excess.
Whilst the £325,000 threshold may not seem relevant for many young adults, a policy of £200,000 coupled with a 1-bedroom flat worth £150,000 already exceeds this by £50,000 before any savings are factored in.
The good news is, by writing your life insurance in trust you can reduce the amount of IHT your loved ones would have to pay.
Writing your policy in trust detaches its value from your estate, meaning that it’ll not be taken into account with regards to the £325,000 threshold.
It’ll also mean that your loved ones won’t have to go through probate in order to gain access to a pay out, making the process faster.
Finally writing your life insurance policy in trust allows you to specify who you want the pay out to go to.
It’ll then be the responsibility of your trustee (similar to an executor of a will) to distribute the pay out accordingly.
Writing your policy in trust doesn’t have to be difficult.
At Reassured we're able to offer a dedicated free trust service on the majority of the policies we arrange, at no cost.
Writing your life insurance policy in trust in summary:
- Reduce/ avoid 40% inheritance tax, (40% over £325,000)
- Bypass the probate process, (for a faster pay out)
- Specify how you wish the proceeds to be distributed