Has anyone used life assurance in trust to cover inheritance tax?

[Pushmepullu]

An independent financial adviser has advised (to a couple in their early 60s) that to mitigate the inheritance tax burden for their children, that life assurance is taken out at £300 pm. On death it will pay out £300k which is held in a trust that pays the iht. I’m struggling to see how this can possibly work. It seems so simple, so why aren’t more people aware of it?
Has anyone heard of this?

BTW, we aren’t the ones being advised.

I have s trust I have set up for this purpose. Mid 60s/ estate about 4m currently, £800 a month peemium

It fails and nothing is paid out…

That's a pretty good reason not to get this type of policy. All of that money gone and nothing to show for it.

You can say that about any insurance, but yes it’s is a spectacular waste to drop the premiums late in life, but the kids (who will benefit) can always pay the premiums.

We were recommended a policy to avoid children having to stump up IHT if probate was delayed. In case the children can't find the cash easily. But if your children can't borrow to pay IHT, the chance of them having hundreds of pounds each month seems a bit remote too.

It isn't like other insurances - we pay car insurance by the year. If I can't afford it and therefore a car, then the payment/benefit go at the same time.

Thank you. That is giving me a better idea of payments. Have they given you an indication of how much it is likely to pay out?

We’ve had this for about a decade and are thinking of upping the amount covered.

This is the concern. Whilst our kids may be high earners atm, who knows what the future holds? This is the gamble with this sort of arrangement.

Is that because your assets have increased? Would you mind giving an idea of how much you are paying pm? Are you and OH in good health, and rough age? TIA.

Yes, we did this 15 years ago. We’d bought a house and realised that this would take us into IHT territory. With our family still young we didn’t want to leave anyone exposed to making snap decisions to raise money at a time of crisis and grief so we took tax advice and were steered to a whole of life policy, written into trust. We started out paying in about £9 a month and these days it’s about £20pcm. The value of the payout is uprated each year. We’ll have to pay forever, but it’s a cost effective way of making provision for a tax liability during your life and consuming your own smoke, so to s. It was a fairly niche product when we took it out but there’s been a rush of interest since pension pots were brought into the IHT fold.

Yes but why would you stop paying ? Surely children who inherit would pay to recoup. Ours is 44 a month - nothing.
Admittedly your quote is high at 300. We started years ago in case of our deaths for security for our child and guardian then now it's to " offset" IHT.

Yes this is common sense. 🤷‍♀️

Maybe if you put all of £90k at the beginning - unlikely if you feed it in at £300pm.

Have you never met someone who didn't have £300 a month spare, to pay for a financial product their parents chose years ago? Circumstances change and some people really don't have spare cash each month, even with the promise of a decent payout at some point.

You didn't read my post properly. I did say the 300 was high.

I thought the difference was assurance is a lifetime policy guaranteed to pay out so long as you keep up payments. Insurance is a time limited policy and will only pay out if you die within its term.

I would start wondering if the adviser is selling the life insurance or is on commission. If the couple are in their sixties presumably their kids are not dependent so don’t see why they don’t just save the £300 a month and self insure, unless I suppose they expect to die very young I guess.

But the OP has been offered £300. Your £44 is irrelevant to them.

Because if you save that amount it then forms part of your estate so gets taxed anyway!

we have a scary expensive whole life policy to pay out the complete IHT liability on second death…goes directly to dc with no iht payable. So they can pay hmrc without having to sell house etc first…

I have a similar policy - my husband died suddenly in 2023, completely unexpectedly. I’m now early 60s and in good health but there’s no guarantee I won’t die tomorrow, next week, next year.. if that happened my estate would be liable for IHT, mainly because of my house, and none of my children would be in a position to pay the tax before probate was granted. It took nearly two years for my husband’s estate to be wound up and it made an already stressful time even worse and that was without the worry of IHT. The policy will pay out enough to cover any tax liability and a bit left on top - the premiums are ~£200 a month. Yes, if I live until my 90s and need to go into a care home then the premiums will have been wasted but if I die in the next few years it will make my children’s lives a bit easier and that’s worth it to me.

We are talking generally on this thread about these products. Other people have done so too .

That’s not the point of the policy