Life insurance policyholders are leaving their families with unnecessary inheritance tax (IHT) by failing to complete a simple form, financial advice firm NFU Mutual has warned.
Under normal circumstances, the payout from a life insurance policy will form part of an individual’s estate and may be subject to IHT.
However, by writing a life-insurance policy in trust – done by filling in a form from the insurer – the proceeds from the policy can be paid directly to beneficiaries rather than an individual’s estate. This means it will not be taken into account when IHT is calculated and monies can be paid out quickly by trustees.
Sean McCann, chartered financial planner at NFU Mutual, said the prospect of paying IHT on a life insurance policy is all too frequently a nasty surprise for thousands of bereaved families.
“Thankfully, remedying the situation couldn’t be simpler – by contacting their provider and completing a trust form, policyholders can potentially remove the threat of their loved ones facing a costly IHT bill,” he stated.