Placing an existing Term policy into Trust - Terminally Ill client

Client with terminal illness (expected <1 year to live).
Has an existing Term Life policy not in Trust (so will pay to estate)
If the client put the policy into Trust now - how would HMRC deal with the IHT impact?

There seems to be a loss to the estate, but as the Term policy has no value, is the loss to the estate the premiums paid to date?

Assuming Trust used is Bare (client knows where the payout is going) premiums are PETs so premiums paid more than 7 years ago can be disregarded for NRB?

Can anyone help - I am probably over complicating this....

Comments

  • Hi

    There is certainly a potential for the life assurance to have a value on entry into the trust if the client has a terminal diagnosis. One way to test this is to ask if she qualifies for the payment of the sum assured under the policy while she is terminally ill. If she does, then it clearly has a value now and it's possible, even likely, that HMRC would take that value as a loss to the estate. Even if she doesn't, she has the general power to dispose of the proceeds (ie by placing the benefits she is currently entitled to into a trust for others) and HMRC could argue that they have full value given her diagnosis.

    Premiums paid are usually exempt as out of normal expenditure so I'd ignore that bit.

    The benefits of placing the policy into trust in her lifetime are still valid, as it will go to the trust on death, be held for the beneficiaries etc. An IHT charge won't invalidate the trust itself, but I would assume that the value of the policy will be included in the estate and you'll need to consider how any tax due will be paid from the residual assets of the estate.

    Benjamin Fabi FPFS
    Chartered Financial Planner

    http://twitter.com/benjaminfabi 
  • No worries. Also occurred to me that the trustees could still release cash to meet the IHT if it is for the benefits of the beneficiaries
    Benjamin Fabi FPFS
    Chartered Financial Planner

    http://twitter.com/benjaminfabi 
  • richallumrichallum Administrator

    Wish we still had the thumbs up button as that's a cracking answer.

    Paraplanner. F1, Apple, Nutella, ice cream. No trite motivational quotes. Turning a bit northern. Republican.

  • I frequently miss that button :'(

    And thanks :) :)
    Benjamin Fabi FPFS
    Chartered Financial Planner

    http://twitter.com/benjaminfabi 
  • richallumrichallum Administrator

    HUGE thumbs up :D

    Paraplanner. F1, Apple, Nutella, ice cream. No trite motivational quotes. Turning a bit northern. Republican.

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