Life policies and payment of estate debts

I have the following scenario for a will:

Mrs X owns 2 properties each subject to mortgage. Gross estate perhaps £1.1m, loans around £490k. She is not married but has partner and two minor children. She wants to give estate to children but give partner right to occupy property that isn’t family home. There are no substantial liquid assets in estate.

She has 2 life policies which pay out £750k and have been gifted to children.

I am struggling to come up with a solution to acheive what she wants. There will be some IHT due on her death and whilst her children may use the life policies to clear the loans and tax, that can’t be relied upon, particularly if they are still minors.

I am considering including a specific gift of the family home to children subject to IHT and loans so that at least those debts of the estate can be cleared from the life policy proceeds.

Any suggestions for an elegant solution?

Samir Hussain

Would it not be better for Mrs X to give her estate on discretionary trusts, naming the children, any further issue of hers and her partner as the class of beneficiaries and sign a letter of wishes outlining how the trustees should deal with matters. I presume that when you say that the 2 life policies have been gifted to the minor children, these have in fact been written in trust and Mrs X has appointed an additional trustee(s) along with herself. If the children were still minors on her death, and the intention was that subject to the right of occupation of the property for the partner, which would need to be appointed to him, they would become beneficiaries of the whole estate, I would consider that the trustees of the policies would be acting in the interests of the children if they were to fund any inheritance tax arising in the estate.

Patrick Moroney
BWL Solicitors