Do you have a pension or life policy? Here is a tax saving tip…

Aaron Spencer

Partner & Head of Private Client

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December 2, 2020

Categories Tax and Wealth PreservationWills and Inheritance

Many of us make regular payments into a pension or a life policy throughout our lifetime, however the death benefits payable under these can be subject to an inheritance tax charge.

If death benefits payable under a pension or life policy are not written in trust they will form part of your estate on your death and may be then chargeable to inheritance tax.

If you write the policy in trust, or in respect of a pension fund you nominate a beneficiary, you prevent the funds payable on death from falling into your estate. To the extent that you nominate a surviving partner, spouse or civil partner to receive the death benefits, Inheritance Tax may be payable on the funds to the extent that the survivor has not spent them before their death.

A way in which we make steps to reduce any tax that could be payable is by creating a bypass trust.

If you create a trust during your lifetime and you assign to it policy proceeds payable on death (or you nominate your trustees to receive pension death benefits) you by-pass your estate and that of the survivor’s. In such a case an Inheritance Tax saving can be made.

We advise on the benefits of assigning or nominating pension and life cover proceeds to a trust. We draft the necessary documents to set up the structure and once the policy funds are transferred to the trust we can assist with the on going management and administration.

These bypass trusts are often considered as part of a general estate planning consideration at the time of making a will, or when a client has a particular concern for Inheritance Tax.

Contact Aaron Spencer for further information on 01227 763939.