Skip to main content

Call to use life insurance in trust as more than 6.9 million parents give children inheritance early

Over 6.9 million parents have given their children 'their inheritance' early, to try to reduce the amount of inheritance tax payable on their estates. This amounts to a total of £227 billion, at an average of £32,920. A further 6.5 million  parents have not yet transferred assets to their kids but plan to do so in the future to avoid a hefty inheritance tax bill, according to Direct Line Life Insurance.

Of those who haven’t considered giving their children their inheritance early, 34% said they did not have any assets to transfer, while more than one in ten indicated that they might, but that their children were presently too young to be gifted money.  13% were concerned that they might need their assets in retirement while another 13% believed their children should not be provided for while they are still alive, while nine per cent did not know that gifting money could reduce their inheritance tax bill when they pass away.

The increasing number of broken marriages are also making inheritance planning even more complicated, with divorcees transferring assets to named beneficiaries early to avoid them going to their new partner if they remarry. 15% of divorcees has already transferred assets to their children or has placed them in trust, gifting on average £16,602.80 while 37% of divorcees plan to transfer money in future if they remarry.  Some divorced parents make these transfers because they are concerned that their new partner would not provide for their beneficiaries in the event of their death.

Philip Munro, partner at law firm Withers LLP said: "Lifetime gifting is a strategy that can be used to reduce a future potential inheritance liability and will appeal to many parents who want to provide for their children, particularly as they may be struggling to access the current housing market.  However, there can be inheritance and capital gains tax implications in the making of gifts and so parents should consider taking tax advice. 

“Where individuals are taking out life insurance it would often be recommended that these polices be held in trust to avoid their proceeds being taxed on the death of the life insured,"

 If a life insurance policy is written into a trust, it should help to ensure that any money paid out from the life policy would not be part of the estate of the person covered, helping to minimise Inheritance Tax. This will also help to ensure that the money paid out from the life policy can be paid to the right people quickly, without the need for lengthy legal processes. Another benefit of placing a policy under trust is that you can indicate who you want the proceeds to be paid to. A trust can control when the money from the life policy will be paid out.  This can ensure that children receive some financial support from the money, but do not have full access to it.

 

What Investment magazine: SAVE 47%

Growth Company Investor: free trial