In the previous article we reviewed inheritance tax and the rules regarding gifts, annual exemptions and other specific exemptions.
I mentioned that I would move on to review a particular solution which has been used by clients over a number of years in order to either assist in the funding of inheritance tax or indeed leaving a legacy to their children.
This has been referred to as a legacy plan or insured trust fund and it revolves around funds being paid into a whole of life insurance contract which pays out a lump sum of money on second death.
These policies should only be considered once the first life/event planning has been fully catered for.
As the policies require premiums paying through until the second death there must also be sufficient income or wealth to cover such premiums.
The whole of life policy is a form of life insurance which as it states is designed to last for whole of life. They can be written on different bases and care must be taken to select a product which has either a guaranteed premium or one which is established with sensible assumptions regarding growth.
Their attractiveness comes from the fact that because they are written on a second life basis, they can provide substantial cover compared to a first life policy.
To illustrate, a couple who are both 60 years old who effect a joint life first death policy for £6,000 annual premium (equivalent to using each of their individual IHT exemptions) secures cover of £235,000*
In comparison, for the same couple a joint life second death plan (i.e. the legacy plan/insured trust fund) offers cover of £516,000*
So, over half of a million pounds that can either go to help paying any inheritance tax, or simply left as a legacy to the children.
These have also proved popular where the clients wish to use their own assets in their lifetime (instead of trying to keep hold of the assets to pass down to their children) in the knowledge that they have secured a legacy for them on their death in any event.
Lastly, the word trust in the insured trust fund, is key. The policy must be written into trust to ensure the beneficiaries receive the proceeds speedily and without falling into the clients’ estate, thereby exacerbating the IHT problem.
As always planning such as this needs careful thought to ensure objectives are achieved.
* All figures correct as at 26/5/2016 – Source IRESS system
The above is provided for information purposes only and we recommend that professional independent advice is taken prior to making any decisions or taking any action.
I mentioned that I would move on to review a particular solution which has been used by clients over a number of years in order to either assist in the funding of inheritance tax or indeed leaving a legacy to their children.
This has been referred to as a legacy plan or insured trust fund and it revolves around funds being paid into a whole of life insurance contract which pays out a lump sum of money on second death.
These policies should only be considered once the first life/event planning has been fully catered for.
As the policies require premiums paying through until the second death there must also be sufficient income or wealth to cover such premiums.
The whole of life policy is a form of life insurance which as it states is designed to last for whole of life. They can be written on different bases and care must be taken to select a product which has either a guaranteed premium or one which is established with sensible assumptions regarding growth.
Their attractiveness comes from the fact that because they are written on a second life basis, they can provide substantial cover compared to a first life policy.
To illustrate, a couple who are both 60 years old who effect a joint life first death policy for £6,000 annual premium (equivalent to using each of their individual IHT exemptions) secures cover of £235,000*
In comparison, for the same couple a joint life second death plan (i.e. the legacy plan/insured trust fund) offers cover of £516,000*
So, over half of a million pounds that can either go to help paying any inheritance tax, or simply left as a legacy to the children.
These have also proved popular where the clients wish to use their own assets in their lifetime (instead of trying to keep hold of the assets to pass down to their children) in the knowledge that they have secured a legacy for them on their death in any event.
Lastly, the word trust in the insured trust fund, is key. The policy must be written into trust to ensure the beneficiaries receive the proceeds speedily and without falling into the clients’ estate, thereby exacerbating the IHT problem.
As always planning such as this needs careful thought to ensure objectives are achieved.
* All figures correct as at 26/5/2016 – Source IRESS system
The above is provided for information purposes only and we recommend that professional independent advice is taken prior to making any decisions or taking any action.
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