[Closed] Life insurance/inheritance question

I thought you always had to have a named beneficiary for life cover. It's not inheritance

I thought this too, when I did mine through work they asked who I wanted the money to go to and in what amounts.

i think mine is set to be paid into trust, with the trustee being my wife. I understood it would avoid inheritance tax that way as it was never mine. need to update it all anyway since junior came along.

I believe that you can specify the person who the money goes to (the Grantee). However, if the person insured (or, strictly, assured, it's life assurance, not life insurance) dies without a will it may be more complicated.

Rule 1 - make a will.

[i]I thought this too, when I did mine through work they asked who I wanted the money to go to and in what amounts[/i]

That's possibly different, is that linked to your pension? If it is, it's probably a Death In Service benefit, and not strictly life assurance.

[i]i think mine is set to be paid into trust, with the trustee being my wife. I understood it would avoid inheritance tax that way as it was never mine.[/i]

I'm pretty sure there's no IHT charge on husband to wife stuff anyway.

Thanks - yes I'm talking about life assurance rather than anything related to employment. Agree a will would be best but think in the short term some life cover would be easier to arrange but not if it's going to get swallowed up into an intestate situation

Ahh right, yeah must be death in service. guess if im going to die early I best make sure its at work!

Writing the policy under trust (flexible trust probably) will ensure the money goes to the named beneficiary without need for a Grant of Probate. It will fall outside the estate for IHT purposes but there is no IHT Liability accruing on inter spousal transfer anyway.

Sorry, the point about it falling outside of Probate is important as it means the money will reach the beneficiary very much quicker than if you have to wait for Probate.

[i]Agree a will would be best but think in the short term some life cover would be easier to arrange but not if it's going to get swallowed up into an intestate situation [/i]

A will is actually a piece of pi$$ to arrange, and it might be worth getting actual advice about what would happen in an intestate situation.

In fact, it must be possible to nominate a grantee, as that's what happens when people take out life cover to cover a mortgage - the lender is the grantee.

Anyway, I refer you back to Rule 1 🙂

IIRC the answer is yes. You can take out a life policy and the beneficiary can be someone else (or, often, a solicitor acting for others).

I would have thought this doesn't really come under intestate discussions, as the policy is paid out outside of the deceased's estate anyway.

kcal, life policy proceeds will form part of an estate unless it is part of a trust. Sorry to be a pedant, but life assurance will always be for the benefit of someone else for the simple reason that you'll be dead! 🙂

IHN re the mortgage issue. The life policy may be assigned to the lender or it can simply be set up to provide funds for the survivor to settle the loan.

We may have missed the point here anyway. Just re-read the OP. James, you can insure someone else's life if you have an insurable interest in it i.e. if you will suffer a demonstrable financial loss on their death...business partner, co mortgagee etc. If you take out the policy on their life, the policy and proceeds belong to you and will not form part of their estate.

slowjo, sorry, yes, typed in haste. should have added the 'written in trust' bit. which adds (slightly) to the administrative details when taking out the policy.

When arranging a life insurance policy you should always ask your adviser to put the potential benefits in trust so that they will pass wide of your estate. If he is a proper adviser he will have already explained this to you in the first instance (if not then your estate could have a claim for misselling after you die and pay Inheritance Tax on the proceeds).

The proceeds of a life policy not going into trust form part of your estate and are taxable (40% over £325000) so the life policy you arranged to pay off your mortgage could end up 40% short.

There are thousands of policies not written in trust and the government does very nicely from inheritance tax charged on these.

Oh and declaring an interest - as a Will Writer - make a will, its easy, cheap and very important.

NJA - Surely if you take out life insurance to cover a mortgage debt, then the estate will have both the outstanding debt of the mortgage and the proceeds of the insurance, so the net effect would be zero

paul_m IMO you are right. The IHT liability is only calculated on the net proceeds of your estate.