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James Ryan Thornhill's Del-Ryan Rafter's column in the Nottingham Evening Post.

Life Assurance

November 2013 

 Do you have life assurance? Let's assume you have and let's imagine you died five weeks ago.Ignoring your family’s grief and being strictly practical, let’s look at what’s happening right now. It all depends on how your life assurance was set up. There could be serious problems if the benefits are part of your estate – especially if you didn’t make a will or if your will didn’t appoint suitable executors (which happens more often than you might think).

That’s exactly what happened to Sandra. She had always insured her car through us, but she and her partner would never agree to a financial review. That is, until he died suddenly, leaving a sizeable life policy he’d bought some years ago when he picked up a brochure at the super market. Of course, the policy wasn’t in trust. We had to explain to Sandra that the policy benefits could only be paid to Geoff ’s estate – and would be locked in till probate is granted. Whilst probate used to be granted fairly quickly, the new process reduces the possibility of fraud but can take weeks or even months.

Meanwhile, Sandra desperately needed the policy benefits to feed the children and pay the bills. Worse still, the policy benefits increased the value of Geoff 's estate above £325K, so his dependants must pay 40 per cent tax on the surplus – a higher rate tax on bereavement. The tax had to be paid before probate could be granted, so Sandra now had to borrow about £80k and then wait longer to receive less money.

It could have been so much easier if Geoff had just gone one step further when buying his life policy. A financial adviser would have discussed several options, including a policy written in trust, but Geoff had bought his policy without financial advice. In fact, completing a simple trust form would have lifted the policy and its benefits out of his estate. If Geoff had done that, the life company would have paid the benefits straight to his chosen trustee(s), to use for his dependants' immediate and long-term needs. And the benefits wouldn't normally be added to his estate for inheritance tax. Sandra and the children would have been able to use the policy benefits instead of scrimping, saving and taking loans and overdrafts for the next few months – not to mention the inheritance tax they'd have saved. It's not too late for you – you didn't die five weeks ago.

You can arrange life assurance if you haven't done so. And if you already have, you can still place your existing policy in trust very easily. It's slightly simpler if you're a member of your employer's death-in-service benefit scheme – your benefit is already in trust and outside your estate. Otherwise, if you arrange life assurance to provide for your loved ones, make sure the benefits will be paid as you wish. Execute a trust and put the right money in the right hands at the right time.