Legal and General has warned advisers to consider putting their client’s life insurance policies into trust to help mitigate inheritance tax liabilities, with its data showing the the vast majority of policies could count towards inheritance tax limits.
L&G’s customer data shows that only around 6-8 per cent of its life policies are currently placed in trust, leaving policyholders at risk of exceeding the £325,000 inheritance tax threshold.
Under normal circumstances, the lump sum received from a life insurance policy will form part of a legal estate and may be subject to inheritance tax.
But by writing a life insurance policy in trust, the proceeds from the policy can be paid directly to the trustees, who can then share this with the beneficiaries rather than to the deceased’s legal estate. This means the insurance money will not be taken into account when inheritance tax is calculated and the value of the estate may remain below the threshold.
L&G also cited Office for National Statistics data which showed that 12 per cent of the UK population are living together as unmarried couples, which UK law does not recognise in the same way for tax purposes.
For unmarried couples, assets such as the family home or protection policies can be counted towards their estate and push these couples over the inheritance tax threshold.
L&G has launched a new online hub designed to simplify the understanding of the process of setting up a trust for protection policy holders. It helps to identify a suitable trust for their new or existing policy and create a deed in just a few minutes for printing and signing.
Mark Holweger, managing director for the intermediated business at Legal & General Insurance, said that putting life insurance policies in trust may be a good move in terms of financial planning for many customers – but it’s something that is done by surprisingly few people.
“Legal and General’s online trust hub is another way of keeping customers informed of all the options that are available to them,” he commented, adding that “there’s a real opportunity here for advisers to make a significant difference to their client’s IHT planning process”.
To read more on putting protection policies into trust and earn CPD minutes, read out adviser guide by clicking here.
peter.walker@ft.com
