Those with estates worth more than £300,000 who want to maximise the money left to their heirs should take out a life insurance policy to cover any inheritance tax (IHT) bill and make sure that the policy is written ‘in trust’, says Dido Sandler in the FT.
That way, beneficiaries of your estate will avoid having to hand up to 40% of the value of the policy straight to the Inland Revenue, and can “lay their hands on the money on day one“, rather than having to wait for up to six months for probate.
There are various types of policies and trusts – you should consult a financial adviser to find an arrangement that suits – but if you are married, a joint whole-of-life, second-death policy, would pay out a sum assured equal to the couple’s expected IHT liability when the “second spouse falls off his or her perch“.
Depressingly, you (or your heirs) will be “quids in” if you die soon after taking out the plan, but if you survive too long your premiums will shoot up and “the opposite will probably be true”. Of course, you could always get your children to pay: “after all, it is they who stand to benefit”.