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Trusts & Estate Planning

Trusts & Estate Planning

Useful role in family finances

A trust is a legal arrangement enabling assets to be held on behalf of someone (the beneficiary), perhaps a child under a specified age or maybe an adult who is in line to inherit under a will. Trusts may have a role in estate and inheritance tax (IHT) planning, which may be complex or simply involve keeping a life insurance policy outside the estate.

When family protection or other life insurance is held in trust, after death the proceeds may be excluded from the deceased’s estate and paid to the beneficiary before grant of probate and without liability for inheritance tax. Without a trust in place, the insurance payout would be added to the estate and could then attract an IHT charge of 40%.

In addition to legitimate IHT avoidance, there can be a practical advantage in accessing the life insurance payout before grant of probate, because probate will not be granted until any due IHT has been paid. If so planned, the insurance proceeds may cover all or a large part of the IHT and so facilitate swifter distribution of bequests to all beneficiaries.

It is vital that setting up a policy in trust is done correctly. If it is not, the advantages could be jeopardised, as the proceeds could become part of the estate and so increase the IHT liability and possibly delay payments by the deceased’s executors to the beneficiaries. Our advisers will guide you through all the required procedures to ensure that the proceeds of your policies are paid to your chosen beneficiaries in a timely manner.

Trusts and Estate Planning are not regulated by the Financial Conduct Authority. This article is intended to provide a general appreciation of the topic and it is not advice.