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25 July 2007
Our clients have a large country estate. Much of the land is held on 'traditional trusts' with successive life interests in tail male. The present life tenant recognises that there will be a significant inheritance tax liability on his death, since the underlying value of the trust assets will fall into his estate.
The life tenant and the trustees are minded to take out some life assurance to cover (part of) the liability. The life assured must clearly be the present life tenant but who should take out the policy and who should be the beneficiary of the proceeds on the life tenant's death?
Irrespective of whether the trustees or the life tenant take out the policy the following points seem to arise.
- If the beneficiary of the policy is the life tenant (i.e. the life assured) the policy proceeds will fall into his estate and suffer 40% IHT.
- If the trustees are the beneficiaries of the policy the policy proceeds will augment the value of the trust fund and by virtue of IHTA 1984 s 49 will be treated as part of the life tenant's estate on death thus suffering 40%...
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