Inheritance Tax

[MichaelP]

I have heard that some Insurance Companies are offering a Life Policy which pays out on Second Death and that this is a very useful instrument to protect against potential Inheritance Tax Liability - Has anyone taken this out and I am wondering if it is worth considering? Thanks

[NoGood Boyo]

Lots of insurance companies offer "Joint Life Second Death" policies. To be effective they should be "Whole of Life" policies, ie they do not have a fixed "term" but last for as long as the premiums are paid. The proceeeds (pay out on the second death) can be used to pay any inheritance tax, but this will only happen if the policy is written in an appropriate form of flexible trust or on a "life of another" basis. Otherwise the money will form part of the deceased's estate (total assets) and will only make the inheritance tax bill bigger! Inheritance tax must be paid before the beneficiaries of the estate are granted probate (access to their inheritance). In other words, Yes, but it needs to be done properly, for which you will probably need to talk to a Financial Adviser.

[Miss Zippy]

This is a very common and straightforward way to fund teh cost of IHT so your dependents are not left with the hefty bill.  As NoGood Boyo says though, these forms of insurance policy must be written in trust so the proceeds of the policy do not form part of your estate. Speak to a financial adviser who is a specialist in estate planning as they may be able to provide you with the trust documentation.  Alternatively, see a solicitor to ensure that a proper Declaration of Trust document  is put in place - they're very straightforward so shouldn't be expensive if you do decide to use a solicitor.