IHT Planning using Life Assurance in Trust

IHT Planning IHT Life Assurance in Trust

The first thing to say about Life Assurance is that it's use does not actually avoid IHT. However, Life Assurance written in Trust on a "second death" basis can be a relatively inexpensive method (dependent on health & age) of creating a tax free lump of money that could be used by your Personal Representatives to pay some or all of the Inheritance Tax due on your ultimate Estate. It is worthy of note that in most cases, before any capital held in an Estate can be released to the rightful beneficiaries, any IHT liability will need to have been paid to HMRC first.


Life Assurance written on a "second death" basis in Trust can provide the following IHT benefits:


  • Relatively inexpensive way to provide an IHT free legacy to cover some or all of your Estates IHT liability.
  • Premiums may be treated under the "Gifts out of normal Expenditure" IHT Exemption in most cases.


How does Life Assurance written on a "second death" basis work?

When Life Assurance is written on a "second death" basis it means that two lives are assured. This would normally be written on the lives of both husband and wife (or Civil partners). In the event of first death, the plan would continue until the death of the second life assured. Since the plan would be written under a suitable Trust deed, on second death the Trustees of the plan would claim the proceeds which would then be paid direct to the beneficiaries free of IHT.


What if the sum assured is no longer required to pay for an IHT liability?

If, due to the success of other IHT planning initiatives or future Budget changes, the sum asssured payable on the event of second death could just form a tax free legacy.


Are there any downsides to using "second death" Life Assurance plans?

Before any Life Assurance is granted on an applicant, the life assurance provider will need to medically underwrite any application in order to agree the premium and sum assured. Since insurability is determined by an individuals state of health and age, clearly there are situations where either the life assurer would decline to provide the assurance or offer the assurance subject to premiums that were not realistically affordable. It is an important condideration that for any insurance plan to continue, all premiums need to be paid up until time of second death.


Who would Life Assurance written on a "second death" basis be suitable for?

Life Assurance on a "second death" in trust basis would be particularly suited to:


  • Married couples / Civil partners planning to provide for some or all of an IHT liability
  • Enjoying good health and normal life expectancy for their ages
  • Can afford to pay regular premiums for the rest of their lives


Life Assurance Plans - Government Wealth Warning

Most people will have some form of Life Assurance in place. For plans written on a single life basis with no investment element, normally it is highly recommended that this kind of arrangement be written under a suitable Trust. When a plan is not written in Trust, on death the sum assured when it pays out will form part of the deceaseds Estate. That means that not only could the life assurance actually add to an IHT liability, but more pertinently, the intended beneficiaries may have to wait to receive the sum assured due to Probate or Intestacy delays. With Life Assurance written in Trust, the sum assured can be claimed immediately by the Trustees and paid to the beneficiaries relatively quickly. If you have life assurance that is not written in Trust you should seek the services of a professional adviser without delay

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