Life insurance and estate planning
Produced in partnership with Keith Bruce-Smith, Judith Robertson and Katie Walsh of Sinclair Gibson LLP

The following Private Client practice note produced in partnership with Keith Bruce-Smith, Judith Robertson and Katie Walsh of Sinclair Gibson LLP provides comprehensive and up to date legal information covering:

  • Life insurance and estate planning
  • Overview of the use of life insurance in estate planning
  • Whole life assurance
  • Policy terms
  • Costs
  • Tax treatment
  • Appropriateness for tax planning:
  • Term insurance
  • Policy terms
  • Tax treatment
  • More...

Life insurance and estate planning

Overview of the use of life insurance in estate planning

Life insurance or life assurance can be an important tool in estate planning. This Practice Note summarises the main types of insurance available on the market, considers their usefulness in estate planning and evaluates the relevant tax considerations.

A principal issue in estate planning is funding the inheritance tax (IHT) liability arising on the death of an individual where no spousal exemption applies and the assets of the deceased comprise in some material part illiquid property such as land, shares in a business that may not attract business property relief and chattels (eg works of art). Although IHT instalment property relief for illiquid assets, which spreads payment of tax over ten years with interest added, can be available, the problem remains that the IHT has to be paid, and it may be difficult to generate liquid funds to do so.

Insurance can provide the liquid funds needed on the death of an individual. If the life policy is held through a trust specifically constituted to own it, or assigned to a beneficiary of the individual's estate at its inception, the benefits will not form part of the deceased life insured's estate and will be paid out without the insurance company requiring sight of the grant of representation.

Whole life assurance

Policy terms

A whole life policy

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