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If you take out a life insurance policy, many people assume that if they die, the life insurance company will pay the benefits to their loved ones tax free.
Most life policies are written on an own life-own grantee basis that means that the insured is both the person who is insured and the beneficiary of the policy. That arrangement means that the proceeds of the policy will be subject to probate.
This is unsatisfactory in a number of ways, there will be a delay in paying the money out and the money may not be paid out to your chosen beneficiaries. In addition the inclusion of the policy proceeds within the valuation of estate, may mean tax is due to be deducted from the final payout.
If you leave assets of over £5,000 than your estate has to go through probate. This can be a lengthy process, often at least 6 months, but can take as long as 18 months. It depends on the efficiency of the solicitors and the complexity of your estate.
If you have written the policy in trust then this you may avoid delay, if your trust is written properly and kept up to date then the people you really want to benefit, will benefit. The proceeds will also be tax free.
Unfortunately the person who sold you the life insurance receives commission for selling the policy, not for ensuring that you are advised properly on trusts.
You may not have reviewed your policy or trust wording, so it may be hopelessly out of date.
Given the complexities and sometimes tangled relationships of modern life, it is helpful to have a system or procedure to ensure that any life policy written “skips over” probate and so avoids being lumped in with the rest of your estate. The system or process should also deal with any technicalities that can prolong paying monies out to needy beneficiaries.
There is a system for ensuring that any proceeds from a life insurance skip probate and will enable the proceeds to be paid out within 10 days of providing a death certificate. This process or procedure is enabled by having a “probate policy”.
The probate policy will assist not only ensure that your life proceeds go to the beneficiaries of your choice but also spares emotional suffering as sometimes occurs with unclear wills, leading to disputes about who left what to whom.
In addition it can deal adequately with leaving monies to beneficiaries that are not immediate family and you may prefer to keep private to yourself.
Do you have any queries abut your life insurance, wills or probate? Then contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.