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Inheritance Tax Planning - Estate Protection

Protecting Your Estate

Inheritance Tax is the amount of tax that could be payable on someone's estate worth over a specified amount when they die. You may think that you can pay the Inheritance Tax out of the funds that are left to you in the Estate. If you think that this is the case - you are wrong. The Inheritance Tax payment has to be made before the funds can be released from the beneficiaries estate.

Inheritance Tax - payable before the estate moneys can be released

Your loved ones can't claim what's due to them under your will, and then pay the Inheritance Tax. They must pay Inheritance Tax first, before the value of the estate is released to them.

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Life Insurance - a tax free way to pay Inheritance Tax

That's why many people take out a life insurance policy which will pay out on their death and so cover the cost of any Inheritance Tax due on their estate. The plan should be set up under a trust, so that it does not form part of the deceased's estate for inheritance tax purposes. What's more, the proceeds of the policy are paid free of tax.

For IHT planning, (all life policies should be written in trust to avoid the life policy proceeds exacerbating the size of your estate). In the case of a married couple, a whole life insurance policy is taken out in joint names and payable only after the last person has died. In the case of a single person, a whole life insurance policy is taken out in their name alone. The insurance plan is set up as a trust, with the beneficiaries usually being the children and other family members of the deceased.

Gift Inter Vivos Insurance Policy - Protecting Lifetime Gifts

People can reduce or eliminate their Inheritance Tax liability by reducing the value of their estate during their lifetime. Usually this is done by making gifts to family members (potentially exempt transfer or PETs) - PETs are tax-free as long as the donor survives for seven years after making the gift.

There is a risk that the donor may die within the seven-year period, so the donor will often take out a life insurance policy to cover the cost of the tax payable, should they die within that period. The type of insurance is known as a gift inter vivos policy and runs for seven years. The policy is set up in trust to ensure that the funds fall outside the donor's estate for tax purposes. The beneficiaries are normally the heirs to the estate. Click here to find out more...

Whole of Life Insurance Policy - Insurance for the whole of your life

Whole of Life Insurance always pays out, it is guaranteed that the policy will pay out upon your death. There are not many insurance companies that offer this sort of cover as most insurance companies sell term life insurance.

As the name suggests, 'Whole of Life insurance' provides life insurance cover for the whole of your life. The sum insured is paid to your dependents following your death. Click here to find out more...

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