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bigduckontax
bigduckontax, Accountant
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It looks like the insurance policy we took out on ourselves,

Customer Question

It looks like the insurance policy we took out on ourselves, with our son as beneficiary, is not going to be anything like the amount necessary for him to cover the inheritance tax liability that will arise on our estate when we pass away. Can any shortfall simply be deducted from the estate if there are enough investments that could be liquidated for that purpose, or indeed any other available cash amounts in there?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Inheritance Tax (IT) is chargeable on your estate, not on your son's inheritance, although it may well reduce the total sum inherited. Your son is not liable in any way for settling any IT due on your demise. The insurance is to protect his inheritance not to meet non-existent personal tax liabilities.

I assume that you have made mirror wills to each take advantage of the 325K exemption from IT.

Depending on the terms of your will it can be altered after death by a Deed of Family Arrangement if all beneficiaries agree. Thus funds from the estate can be used in any way required.
Customer: replied 3 years ago.

Hi Keith,


 


Sorry, that's not quite clear to me as it's not quite in the terms I put the question. So that I can be sure, are you saying that it is just a matter of the executor liquidising enough estate assets to pay IHT, then paying it, following which the estate can be disposed, and that the Insurance policy with my son as beneficiary has no point as the IHT tax planning device I was told it was?


 


Pete

Expert:  bigduckontax replied 3 years ago.

Your son's receipt from the insurance policy is outside the scope of your IT. Let us suppose he receives 10K. You expected your net estate to be 50K and it actually was 40K. The insurance would make up the shortfall. That is a form of IT planning. Your executor will indeed proceed as you suggest. That is his duty!

 

If the IT is higher than you planned then the insurance policy your son holds will cushion the reduction in the anticipated estate.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3360
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 3 years ago.
Thank you for your excellent support.

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