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Placing life policies in trust

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Significant inheritance tax (‘IHT’) savings can be achieved by placing life policies in trust.

IHT is chargeable at 40% on the amount by which the total value of an estate exceeds the ‘nil rate’ tax band of £325,000, and the proceeds of life policies taken out by deceased persons on their own life will be included in this total. However, if the policy is assigned to trustees during the lifetime of the policyholder the proceeds will be paid to the trustees on behalf of the beneficiaries and will avoid tax.

The trustees could be family or friends or professional advisers and it would be for the trustees to select the beneficiaries, having regard to any non-binding guidance provided by the policyholder.

In most cases the transfer to the trustees would be tax-free. However, a tax charge could arise on some of the more valuable policies if the value of the policy exceeds the nil rate band at the date of transfer. For this purpose, the value would be based on the prospective life span of the policyholder and/ or the value of the premiums paid.

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For further infiormation, contact Pensions Specialist, Simon Taylor, using the details beow.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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