Hi, I am in the situation where, having paid off the mortgage on the family home a couple of years ago, I have taken out another (interest-only) mortgage to buy my ex out of his share of the property which we own as tenants in common. The mortgage term is 11 years but the plan is to downsize after 5 years or so and repay the capital. I was intending to sell and downsize now as DC are adults but both are still studying and living at home, one is at uni for a few more years and one doing a further qualification which should lead to a good job in around 18 months and both really wanted me to hang onto the house for a bit longer if possible.
I have taken out a life insurance policy (also 11 years term) for the mortgage capital but am unsure whether I should put it in trust for the DC. My understanding is that if I don’t put it in trust then if I were to become terminally ill I could claim and pay off the mortgage which would be a huge relief in that situation. However, if I were to die suddenly the insurance payout would become part of my estate and push it over the IHT threshold by £400-£500K (assuming London property prices remain stable and as a single person I can only pass £500K of property onto DC). If the insurance policy were in trust then the estate would only be £100-£200K over the IHT threshold which would be better for the DC.
Is one option clearly better here or do I need financial advice (IFA or tax specialist)? If it makes any difference I already have a life insurance policy taken out a few years ago (£400K) in trust for the DC but this ends in 6 years when I turn 65. I don’t have any health problems currently so expect to be able to follow my plan of downsizing around the age of 65 and repaying the mortgage capital so maybe it would be better to put the life insurance policy in trust for the DC at that point or maybe cancel it? Does anyone have any thoughts on what best to do?