Taking out a life insurance policy
Although cash held with your bank or building society and National Savings Investments can be used to directly pay the Inheritance Tax bill, as money from these sources can be accessed prior to probate being granted, for many people, this still isn’t enough to cover the liability.
If you know how much the bill is likely to be, you can take out a life insurance policy, written in trust, which will pay a lump sum upon your death. While life insurance is one of the best-known types of financial protection, the importance of its role in estate and Inheritance Tax planning is often overlooked.
By having a life insurance policy in place for Inheritance Tax purposes, your beneficiaries can then use the lump sum to pay the bill, instead of having to find the cash from elsewhere*.
The importance of setting up a trust
You will need to make sure that the life insurance policy is set up in a trust with trustees other than just you. This ensures that the proceeds can be quickly distributed to your beneficiaries. Otherwise, the money will form part of your estate and your beneficiaries won’t be able to access it until the Inheritance Tax bill has been paid.
Speak to Evelyn Partners
Evelyn Partners are experts in all aspects of Inheritance Tax and estate planning. We offer a free initial consultation where you can talk about your circumstances and find out more about how we can help you and your loved ones. Call us on 020 7189 2400 or book online now.
* You must bear in mind that an insurance policy will end if you do not make payments and there will be no cash value unless a valid claim is made. Premiums are typically reviewed and may rise at future dates.
This article was previously published on Tilney prior to the launch of Evelyn Partners.