I MET a new professional client recently who has just taken out £300,000 of life insurance online. She is married and both she and her husband have made wills, but their combined estates are over the inheritance tax (IHT) threshold. Therefore, on her death, £120,000 will disappear in tax - possibly more if it is inflation-linked.
To add insult to injury, it might take nine months to a year for her family to receive the pay out, as the estate could be locked-up while awaiting a grant of probate.
Before releasing the grant, which is a legal document confirming that the executor has the authority to deal with the deceased person's estate (their property, money and other possessions), HMRC assesses the estate to ensure that its tax affairs are in order. After they have successfully concluded this assessment, they release the grant to the deceased person's beneficiaries.
This could be avoided by a standard trust form, which should be checked by the family solicitor, at no or very little cost. There could be other benefits such as protection from bankruptcy, divorce and the flexibility to accommodate different beneficiaries, too.
(This is based on our current understanding of tax law, the Financial Services Authority does not currently regulate inheritance tax planning. Of course, reliefs from taxation may be subject to change at a later date.)
THE BEDROCK OF PLANNING
Adequate life cover is the bedrock of any sensible financial planning. But new EU rules that take effect from 21 December 2012 mean that life assurance premiums on new policies for women will rocket by as much as 15 per cent, according to some major UK life assurance providers, such as Bright Grey.
The example below illustrates the potential impact on premiums for a female aged 38, considering £600,000 of level term life and critical illness assurance over 15 years, including waiver of premium benefit and assuming guaranteed premiums.
One of the upshots of this will be higher costs of inheritance tax mitigation, because life cover is often taken to pay out on the second death of a couple, or after a substantial gift. The cash paid out from the policy is often used to mitigate any tax due. For female civil partnerships, this means a double whammy.
Life assurance to cover the financial implications of the death of housewives - to pay for childcare - is another area that will be hit. There are also implications for businesses, as the cost of cover for key female employees and the financial protection of female shareholding directors could soar.
In order to give sufficient time for life assurance companies to gather and assess medical evidence (doctors' surgeries can be slow), there is now an urgent need for women in these groups to seek advice on fixing their costs for the future, before it is too late.
Andrew Kemp is a certified financial planner at Radcliffe and Newlands firstname.lastname@example.org