With the inheritance tax threshold set to be frozen at £325,000 until at least April 2018, it is imperative that individuals take action to minimise their liabilities.
One way to achieve this is by placing your life insurance policies in trust, and yet very few policies in the UK are set up in this way.
Without taking such action, the assured sum will be added to your other assets to determine the value of the estate. If this is over the £325,000 threshold, then your beneficiaries could lose 40 percent of the value of the policy.
However, by placing such policies in trust, they are considered to be outside of your estate for inheritance tax purposes. Furthermore, as the proceeds of the policy can be paid immediately, your beneficiaries can benefit more quickly as the money will not go through probate.
In addition, you have greater control over the policy, as you can specify how the proceeds should be paid out and who should benefit. Even if you are in debt at the time you die, the sum will be paid to your beneficiaries rather than your creditors.
However, it is important to bear in mind that once the trust has been created, the policy cannot be cancelled without the trustees’ permission.