Putting your life insurance in trust is an important consideration if you have a large estate - which includes any money, possessions, and property you own at the time of your passing.
If your total estate is valued over £325,000, then your loved ones would be liable to pay inheritance tax on the amount above this threshold. The standard inheritance tax rate in the UK is 40%.
When life insurance isn’t written in trust, it forms part of your legal estate and is subject to inheritance tax, which can potentially reduce the sum paid out to your loved ones.
In some cases, if you were to secure a significant pay out amount, this could easily push the value of your estate above the tax-free threshold.
Many people put their life insurance in trust to avoid or minimise the amount of inheritance tax their loved ones will have to pay, or to help them pay a tax bill on the rest of the estate.
This ensures they’ll receive a larger inheritance.
In 2019/2020, UK estates worth between £300,00 and £500,000 paid on average £27,100 of IHT[2] and 23,000 of all UK deaths (612,000) resulted in an IHT charge[3].