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Money matters

Inheritance tax - if we both die..

15 replies

dollybird · 05/03/2008 21:32

do both our life insurances combine along with house etc to form part of our estate and therefore potentially becaome liable to inheritance tax? thanks

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RibenaBerry · 05/03/2008 21:36

If your life insurance is done properly it should be written 'in trust'. That means that the payout isn't yours and it isn't counted as part of your estate.

Check it has been with your insurer. Most offer it pretty much as standard. Almost all work policies I have seen are done that way too.

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FairyFay · 05/03/2008 21:42

Your life insurance should be written into trust so that there will be no iht liability. If it hasn't been, then you should speak to someone about doing that

As for your other assets - Assuming that you are married, it will depend on what your Wills say (assuming that you both have one). A clause is often put in saying that you leave your estate to your spouse providing that he/she survives you by a month (for example). That means that if you die in a common accident, then the first to die's estate (the first to die is deemed to be the older spouse) would not pass to the second to die but instead pass to the secondary beneficiaries, eg your children. The same would obviously happen to the second to die's estate.

That would mean that each of your estates would have the benefit of your own inheritance tax free allowance.

I hope that makes some sense???? If you are worried, then please speak to a solicitor about it.

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FairyFay · 05/03/2008 21:43

A bit of money spent now on making sure everything is done as inheritance tax efficiently as possible now, can save a fortune in inheritance tax later on.

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Hulababy · 05/03/2008 21:45

Life insurance doesn't form part of estate.

But shuld be written into trust so doesn't affect spouse's estate.

Go and see a lawyer who specialises in this area of private client work: wills, probate, tax and trusts. They will be able to sort it all ut for you.

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FairyFay · 05/03/2008 21:49

that's true about life insurance if it's written in trust, but it isn't always so it can sometimes be subject to tax. Check it out with your insurance company or a solicitor.

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dollybird · 05/03/2008 21:56

I don't think the life insurance has been written into trust - when we set it up there was a sheet about considering putting it in trust but not sure how. We recently have done our wills and when I mentioned the life insurance he said it didn't count towards the estate as we would have already said who it was to go to, whatever that means??

Have been reading up on the net and if you are married there is now a joint limit of £600k. All very confusing.

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FairyFay · 05/03/2008 21:59

That is true, I had forgotten about the new joint limit. Not sure how that works exactly as I've been a SAHM for a few years now. I really would look into the life insurance as it may depend on the wording of the policy.

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RibenaBerry · 05/03/2008 21:59

When you say "we would have already said who it was to go to" he(the lawyer?) means that, if it is written in trust, you would have specified beneficiaries (i.e. who gets the money). Crap explanation though.

Seriously, phone the insurance company. They're dead (ooh, didn't mean that as a pun) used to these types of enquiries. IIf it's not in trust, they can send you the documents to change it.

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Hulababy · 05/03/2008 22:00

You need to speak to your soliitor again. A good lawyer can help avoid as much IHT as is possble.

DH (a partner specialising inthis area of lawyer) isn't really onhand to answer this query at present - working - but think it needs you to go back and talk with your solicitor again about this issue.

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RibenaBerry · 05/03/2008 22:02

Yup. If you're confused, the other option is to go back to the lawyer. Just thought of the insurance company first because they don't charge by the hour!

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Hulababy · 05/03/2008 22:04

True they don't but equally they may not be as up on this type of law either.

Who did you do your life insurance through - an IFA/ If so they may be able to help.

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RibenaBerry · 05/03/2008 22:07

True. I'm in that line of business myself. Not against charging per se!

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dollybird · 06/03/2008 08:08

I work for an insurance company (I don't do life ins though) and it was set up via someone who works for the company who does all the staff stuff. May go back to him first to ask about putting the life ins into trust.

Re going back to the solicitors, the will has been set up through solicitors via work (had a free consultation) and is dealt with from an office miles away. When I sent back the draft will I asked for clarification on the IHT and they didn't answer the question. Seems a bit wrong for them to assume we had written it in trust.

One last question, if we do change the life insurances to be written in trust does this affect them if only one of us dies and the other needs to claim the money?

Thanks for all your help.

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RibenaBerry · 06/03/2008 22:37

No - it doesn't.

You complete an 'expression of wishes'. This says how you would like the trustees to distribute the money (it isn't legally binding, but in practice it's what will happen unless there are v unusual circumstances - e.g. second family come out of the woodwork!). That normally says you want your spouse to get the money if they're living, and if not X Y Z

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blueshoes · 06/03/2008 23:01

If you can dollybird, see a solicitor specialising in this area. I looked at the standard form trust documents by a well known insurance company and could not make out what they were trying to do (I am a lawyer so not afraid of small print but not specialising in this area). So I got myself some proper advice from a solicitor friend and she said that the insurance company's forms are generally very poorly drafted.

Honestly for the amount of inheritance tax you save, it is worth doing it right. Having to undo the mess of poorly drafted documents is an absolute nightmare and cause unnecessary stress and cost to the ones who survive you.

Also, I believe Gordon Brown has been dipping his hands into discretionary trusts on insurance policies and has imposed some nasty tax charges in certain circumstances. I need to investigate this area myself by doing an audit of my existing trusts, so not completely sure. But worth asking.