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Many curry restaurant owners have assets, including businesses and properties, which they hope to pass on to relatives in the event of their death. However many do not realise that the tax man could get a big slice of it, unless they take action. At present all inheritance under £325,000 is zero rated. However any bequest above this level is taxed at 40 per cent.

One thing you can do is to put any life insurance policy in trust. This is a simple and free way to make things easier for your family if the worst happens.

From a financial point of view, setting up a life insurance policy is one of the most far-sighted steps you can take.

Making sure your partner and chil- dren would be looked after if the worst happened gives you peace of mind. Life cover means that your mortgage repayments, for example, would be dealt with if you died, so your family would not be forced to move out. The policy could also pay a lump sum to help your dependants cope with ongo- ing living expenses.

in your

putting trust life insurance

But the vast majority of life insurance policyholders are unwittingly creating potential difficulties for their families – and possibly adding thousands of pounds to their tax bills – by failing to make a simple adjustment to the way the cover is set up. When you buy life insurance, you have the option of set- ting the policy up “in trust”. What this

So what are the advantages of setting up your life insurance policy in this way? The first reason to use a trust is to ensure that your life policy pays out as quickly as possible. If you die and your policy is not in trust, the proceeds from it will be collected together with the rest of your estate to go through a process known as probate. This is the

to save inheritance tax

legal requirement to make sure your assets are divided up among the ben- eficiaries in accordance with your will. In many cases, probate can take a long time. which could leave the family desperately short of cash for living and housing expenses. If the life policy is in trust, however, the proceeds from it are allowed to sidestep the probate process and can be paid directly and immediately to those who need the money most.

The process also gives more control. If your policy is in trust you can be more specific about who benefits from it as it is not covered by the instructions in your will. For example, if you have young children you can stipulate that any money held in the trust from a life- insurance payout passes directly to

them. You can also dictate when they receive it, such as when they turn 18 or 21.

Outside of a trust, the payment from a life insurance policy is added to the value of your estate for inheritance tax purposes. Imagine you had assets of £250,000 plus a life insurance pay- ment of a further £150,000 when you died. This would give you a total estate value of £400,000 - and an inheritance tax bill of £30,000. However, if your policy was written in trust it would not count towards your estate and your family’s tax bill would be zero.

There are other ways to cut inheritance tax. For example married couples can pool their nil-rate bands.

Despite these potential benefits, only around one in every 15 UK life insurance policies is set up in trust, according to recent figures from insurer Aegon. The process is relatively simple. When you have found a life insurance quote that you are happy with, you should talk to the provider about setting the policy up in trust. This should not cost extra.

It is worth remembering that using a trust is not always the best option, for example, if you have taken out a policy solely to cover your mortgage commit- ment. This is something the insurer will be able to guide you on.

This article was written by Chris Torney

means is that the cover is essentially ring-fenced outside the rest of your assets, such as savings, investments and property. You decide in advance who is to benefit from the trust, and these people are known as the ben- eficiaries. You also appoint a trustee to take charge of the trust and they are responsible for carrying out your wishes.

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