IHT trust for pension/life insurance

[OM98]

Late thirties. 2 young kids. Between us, my wife and I have assets over £1m, largely as a result of (1) pensions, and (2) life insurance. Without these, we'd be under £1m.

Assuming we want to leave everything to our kids, is it worth setting up trust(s) for these?

Benefits as far as I can see: (1) avoid IHT (becomes more of a factor as we get older and as pensions continue to grow), (2) allows us to pass on to our kids when they reach a certain age. Downsides: cost (?), and only useful of we both die (unlikely hopefully).

Am i thinking about this the right way, and what am I missing?

[dalenorth]

Don’t pay for the life policies to be placed into trust. Drop me a pm and we will do it for you. Solicitors can charge up to a grand for a simple form.

[bennno]

OM98 said:

Late thirties. 2 young kids. Between us, my wife and I have assets over £1m, largely as a result of (1) pensions, and (2) life insurance. Without these, we'd be under £1m.

Assuming we want to leave everything to our kids, is it worth setting up trust(s) for these?

Benefits as far as I can see: (1) avoid IHT (becomes more of a factor as we get older and as pensions continue to grow), (2) allows us to pass on to our kids when they reach a certain age. Downsides: cost (?), and only useful of we both die (unlikely hopefully).

Am i thinking about this the right way, and what am I missing?

You don t reference property ownership or equity, however If one of you were to pass then the life insurance could be used to clear a mortgage and between you you d be able to pass a million to your kids that way.

Edited by bennno on Wednesday 17th September 10:25

[OM98]

In terms of property - house worth £1m, 450k mortgage outstanding, so net 550k. Either of our life assurance policies would cover that plus some. But not sure how that influences the approach here?

[OM98]

dalenorth said:

Don t pay for the life policies to be placed into trust. Drop me a pm and we will do it for you. Solicitors can charge up to a grand for a simple form.

Thank you! Do you think putting them into trust os the right move? I don't actually want to change to a new provider since both of us have policies through our employers.

[Crumpet]

Well today I learned the difference between life insurance and life assurance! Is it normal to consider these policies as assets?

[alscar]

Life insurance is usually fixed term as opposed to assurance which pays out whenever you die.
Not sure which OP has as he’s used both terms.
Equally not sure what type of Pensions he is talking about.
As stated already either form of Life cover though can be put into “Trust “by the Provider without even going to a third party - the forms are pretty simple and foolproof.
Not sure the same is true of other “ usual “ assets in terms of putting into Trust given how complex that can be and certainly wouldn’t want to do that without expert assistance.
If it were simple to avoid paying any IHT then presumably everyone would do it.

[okgo]

Crumpet said:

Well today I learned the difference between life insurance and life assurance! Is it normal to consider these policies as assets?

I’ve never seen it mentioned but an aunt of mine had such policies in a trust.

[OM98]

Thanks all - i'm talking about life insurance, provided by my employer in the event of death (same for my wife). On the pension front, I'm talking about defined contribution pensions (for both my wife & I).

I will investigate getting life insurance paid to a trust without going through another third party, thanks alscar.

[alscar]

OM98 said:

Thanks all - i'm talking about life insurance, provided by my employer in the event of death (same for my wife). On the pension front, I'm talking about defined contribution pensions (for both my wife & I).

I will investigate getting life insurance paid to a trust without going through another third party, thanks alscar.

Iirc if the Life Insurance is a BIK for both of you then that needs covering under a “ Asset Preservation Trust “ as well as the Death benefits from your DC pension.
I’m not sure that as not a stand alone policy purchased by you you wouldn’t first also need to talk with HR and then talk to whomever the provider is.
Obviously if you leave then the benefit stops although presumably a new place would also offer the same BIK.
If you are able to set up the Preservation Trust then you will also need to register it under the TRS - both separately for you and your wife’s.
Once done though and assuming no changes occur to the details you don’t need to relook at as it will have no tax due.
However this has to be done through the Government gateway and log ons for this expire 3 years after set up if not looked at !

[dalenorth]

Ah if it’s a company group policy then the employer should have a broker who can place it in a master or the employers own discretionary trust. I’d be surprised if it isn’t already.

I really wouldn’t rely on group cover if it’s to protect a mortgage or funding children if you’re not around.

[OM98]

dalenorth said:

I really wouldn t rely on group cover if it s to protect a mortgage or funding children if you re not around.

Off the topic of my original post, but why not?

[Panamax]

This employer life cover, what is it? For each of you.
For instance, 4 x salary? Or what? How much does it add up to?

Without knowing how that lot adds up to it's very difficult for you to decide how to move forwards.
You MIGHT want to buy more life cover but before doing that you should also think seriously about Critical Illness cover. The sad fact is that modern medicine can keep you "very unwell and unable to work but not dead yet" for a long time.

The total picture needs to be thought about, not just IHT.

Separately from life assurance, Trusts aren't a magic solution to IHT in any event. Best avoided IMO unless you are, shall we say, significantly wealthy.

By the way, assurance/insurance. The nuances can be debated for a million years but the real question is whether you're buying cover for a fixed period (for instance to run-off 7 years of IHT gifting) or to pay out on death, whenever that may be.

And please, nobody get me started on "over 50s life insurance with a guaranteed pay-out, no medical questions and the premiums never increase". Run Forrest, run!

[Panamax]

OM98 said:

Off the topic of my original post, but why not?

For what it's worth I did rely on employer cover because I didn't need anything greater. It's all a question of what cover you think you need and then considering the extent to which the employer insurance may or may not be sufficient.

[dalenorth]

Group cover payout rates are way behind personal cover, and the insurer or employer can remove the benefit in any year. Worst of all, imagine getting ill, and then leaving your employer as you can’t fulfil your contract role, then to find you won’t get cover elsewhere.

[Caddyshack]

All life polices should be in trust. It can be a simple trust requested from the insurance company. You don t want to add any sum assured (pay out) to the deceased estate.

The proceeds can easily be distributed after death and need not be complicated at all.

The ideal would be a loan note, spend the money and leave a debt for the next death but that gets more complicated to arrange and manage.

Edited by Caddyshack on Wednesday 17th September 20:18

[Panamax]

dalenorth said:

Group cover payout rates are way behind personal cover

That depends what cover OP has from their employer(s).

dalenorth said:

and the insurer or employer can remove the benefit in any year.

It will almost certainly be part of the contract of employment. And even if it was the case that cover could be withdrawn OP would have an opportunity to arrange separate cover at that stage.

dalenorth said:

Worst of all, imagine getting ill, and then leaving your employer as you can't fulfil your contract role, then to find you won't get cover elsewhere.

This is a fair point, and N.B. my earlier comment about Critical Illness cover. You're completely up the chuff if you're off work long term, without an income, but no insurance pay-out because you're not yet dead. Similarly, you need to buy cover before you get ill.

[Caddyshack]

Panamax said:

dalenorth said:

Group cover payout rates are way behind personal cover

That depends what cover OP has from their employer(s).

dalenorth said:

and the insurer or employer can remove the benefit in any year.

It will almost certainly be part of the contract of employment. And even if it was the case that cover could be withdrawn OP would have an opportunity to arrange separate cover at that stage.

dalenorth said:

Worst of all, imagine getting ill, and then leaving your employer as you can't fulfil your contract role, then to find you won't get cover elsewhere.

This is a fair point, and N.B. my earlier comment about Critical Illness cover. You're completely up the chuff if you're off work long term, without an income, but no insurance pay-out because you're not yet dead. Similarly, you need to buy cover before you get ill.

I tend to think of death in service as a bonus. If you change employers or it’s removed and you have developed a health issue such as diabetes then taking out cover could be impossible or expensive.


I had a client who had cancer, the policy I arranged paid out (critical illness). She couldn’t work out why her employer was pushing her to take an early retirement until she worked out that they wanted her out before the death in service would pay out due to death. (I cannot work out why but it was nhs based - maybe they self insure?)

Critical illness is hugely valuable on top of life cover and ideally some income replacement too.

[dalenorth]

Panamax said:

dalenorth said:

Group cover payout rates are way behind personal cover

That depends what cover OP has from their employer(s).

dalenorth said:

and the insurer or employer can remove the benefit in any year.

It will almost certainly be part of the contract of employment. And even if it was the case that cover could be withdrawn OP would have an opportunity to arrange separate cover at that stage.

dalenorth said:

Worst of all, imagine getting ill, and then leaving your employer as you can't fulfil your contract role, then to find you won't get cover elsewhere.

This is a fair point, and N.B. my earlier comment about Critical Illness cover. You're completely up the chuff if you're off work long term, without an income, but no insurance pay-out because you're not yet dead. Similarly, you need to buy cover before you get ill.

You just need to hope if it is withdrawn then you are well enough to obtain cover at that point.