In what ways does life insurance lower inheritance taxes?
Many people naturally find it intimidating to talk about taxes and other financial matters, particularly when it comes to life insurance (which is already kind of a difficult topic for most people). We hope to be able to address some of the most often asked queries regarding life insurance and how it can save inheritance tax!
Inheritance tax: What is it?
You kind of need to grasp what inheritance tax is first to be on your way to knowing how it can effect your life insurance coverage.
A person who inherits money, property, assets, or goods from a deceased person is required to pay inheritance tax.
What connection exists between life insurance and inheritance tax?
Folks tend to tune out when tax is brought up (we get it, it’s really dull), but there are several points you might want to pay attention to, especially if you have or are considering buying a life insurance policy!
If your life insurance policy is included in your estate when you die away, inheritance tax may apply.
The data and statistics
Let’s keep things simple when it comes to the figures. Only the portion of your estate that exceeds your tax-free allowance will be subject to inheritance tax, which has a standard rate of 40%.
Make sure your policy is placed in trust so that the proceeds are maintained separate from your estate and exempt from inheritance tax. By doing this, you can prevent facing an unreasonably hefty inheritance tax bill (IHT).
How may a trust reduce your inheritance tax liability?
Simply put, a trust for your life insurance will ensure that the pay-out is separate from your estate, reducing inheritance tax. Simply put, if the worst were to happen, your life insurance pay-out would go to your beneficiaries directly rather than into your estate together with the rest of your assets.
Trust the trust!
If you’ve previously purchased life insurance but haven’t yet set it up in trust, you should think about doing so. One of the numerous advantages of placing your life insurance policy in trust is that it can reduce inheritance tax.
You can specify who will receive the payout from your policy (the beneficiary or beneficiaries) if the worst happens by using a trust form, a type of legal contract.
You will select the trustee(s) for your trust on this form as well. If you pass away, they would assume legal responsibility for the trust’s administration and would be personally liable for disbursing the policy’s payout once it has been deposited into the trust.
How is a trust form filled out?
Don’t stress about completing them; a complete team of us is here to assist you! Our internal trust team are here to assist you with your trust form. Regardless of when you set up your cover or which provider you’re using, we can help.
What happens if I can’t find my trust paperwork?
Depending on your situation and preferences, we can simply post or email you new life insurance trust forms if you can’t find your current ones or they are outdated.
When you’re ready, one of our helpful trust team members can walk you through the paperwork over the phone.
