From life policy to trust

Before 22 March 2006, writing life policies in trust rarely raised any question of chargeable transfers on creation, nor of periodic charges to inheritance tax (IHT). However, following the Finance Act 2006, the IHT treatment of many trusts used for life policies changed, a key point IFAs need to be aware of in order to maximise benefits from such policies. By way of a brief overview, trusts of life policies are used: for tax efficiency, avoiding the policy-forming part of the life-assured’s estate for IHT purposes; to control the destination of the policy value; to ensure payme...