John Davies is employed as a Managing Director of a manufacturing business in Cardiff. John leads a healthy lifestyle and does plenty of exercise, but worries that someday he may not be around to support his wife, Caroline. The company takes out a Relevant Life Plan, setting his cover at £1 million. John nominates Caroline as a beneficiary.
If the worst does happen and John dies during the term of the policy, the Relevant Life Plan trustees would receive £1 million. This could then be paid, tax free to Caroline, giving her enough money to pay off the mortgage on the family home and hopefully live comfortably for years to come.
The flow chart below shows how it works:
The importance of Trusts
All Relevant Life Plans must be written in Trust. This is one way of helping to ensure that the policy proceeds are paid to those who you want to receive the money and without unnecessary delays.
- Beneficiaries can receive the money at the right time tax efficiently
- Probate is avoided.
- Intestacy law is avoided
- Inheritance Tax (IHT) liability can be avoided/reduced