Recent changes to Inheritance Tax (IHT) have led to many more individuals considering how best to preserve the value of their estates so that loved ones can be supported.
Life insurance policies can play a key role in mitigating the impact of IHT, but only when managed effectively.
If they are incorrectly handled, life insurance policies may simply add to the IHT bill rather than countering it.
How can life insurance policies help with IHT?
As they are designed to pay out upon a person’s death, life insurance policies can be structured to cover the cost of IHT.
This means that the value of the estate remains entirely preserved and can pass fully onto the beneficiaries without any trouble.
To ensure that your life insurance policy covers the cost of IHT rather than adding to it, you should put a trust arrangement in place to hold the policy and adjust the manner in which it is paid out.
How can trusts be used with life insurance policies?
In general, a life insurance policy will aim to match an individual’s estimated IHT liability.
When a life insurance policy is paid into a trust rather than directly to the deceased individual’s estate, it becomes ringfenced from the assets that are used to calculate IHT.
The beneficiaries of the trust will then be able to access the funds of the life insurance policy and use that money to pay off the outstanding IHT bill.
When structured correctly, the life insurance money will pass directly to beneficiaries, preventing them from needing to obtain probate.
This will enable them to receive the funds in time to clear the IHT bill ahead of the six-month deadline.
Trusts are likely a part of your estate planning anyway and we can assist you in managing your life insurance policies to minimise the impact of IHT.
Speak to our team today for effective IHT support and estate planning.
