According to one of the largest UK life insurance companies, just 1% of life policies are written in trust. That is disgraceful and reflects poorly on the financial industry.
Let’s explain.
If your life insurance policy is Written in Trust then, in the event of a claim, the insurance company pays out directly to the beneficiaries you name on the policy. The significance of this is easily missed.
It means that if the policy is Written in Trust, the proceeds from the policy never form part of your legal estate and are not subject to Inheritance Tax. The importance of this is illustrated by the following figures:
Take Mr A. He’s a widower and wants to leave everything equally to his two sons. He owns his home which is currently worth 245,000 with a 10,000 outstanding mortgage. His investments are valued at 52,000 and his car and other chattels are worth 18,000. He also owns a life insurance policy for 100,000 which is not written in trust. We assume that the costs of administering his estate and obtaining probate would be 5,000.
If Mr A were to die now, his estate would be worth 400,000 less Inheritance Tax. Inheritance Tax is...
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