A top tip about life insurance that could save some people up to 40% in taxes and make sure their policy pays out with as little trouble as possible. This only works in the UK.
It's easy, just make sure your life insurance policy is always "Written in Trust." This might sound complicated, but it's easy to understand and set up.
"Written in Trust" makes sure that if you make a claim, the policy will send the money directly to the people you name as beneficiaries when you first buy the policy. If you don't do this, the policy will pay out to your legal estate, which means the money will have to stay in the hands of your lawyer for a while.
Yes, that means delays in the court system and, of course, your lawyer gets a cut.
Then, your estate will have to pay Inheritance Tax if the value of your taxable estate is more than GBP275,000. Keep in mind that your home can easily make up most of the GBP275,000 limit. This is equal to 40% of the estate's taxable value above GBP275,000. So, if your estate has to pay Inheritance Tax and the money from your life insurance policy goes to your estate, the taxman gets 40% of your life insurance policy.
But all of these problems are so easy to avoid.
Just have your insurance policy "Written in Trust." Then, the insurance company sends the money to the people you named on the policy right away, directly, and without any taxes. Just tell the online brokerage that is setting up your policy that you want it "Written in Trust," and they will take care of everything else.
Even if the policy is meant to pay off your mortgage, this advice is still good. Instead of your estate using the insurance payout to pay off your mortgage, the policy can be written in trust and paid to your partner. He or she can then use that money to pay off the mortgage. The good thing? Well, if the amount of your estate that is taxed is more than the IHT threshold, your mortgage is paid off tax-free.
The other good news is that every broker we've met will set up your policy to be "Written in Trust" for free. So it's a situation where everyone wins, which is rare these days.
