TO MITIGATE THIS RISK, YOUR CLIENTS COULD CONSIDER DIVIDING THE POLICY INTO MULTIPLE SMALLER PLANS.
Spreading out policies to make the most of each trust When you set up separate policies in individual trusts on consecutive days, they aren’ t considered to be related settlements for inheritance tax purposes. This approach, known as the Rysaffe principle, has been used for over 20 years. It allows each trust to take advantage of its own NRB. As long as the sum assured stays within this limit, your clients can steer clear of potential periodic and exit charges.
Imagine your client has a policy valued at £ 1 million placed in a discretionary trust, with a full Nil Rate Band of £ 325,000. If, at the ten-year anniversary, the trust holds value, or if it’ s a whole of life policy with significant premiums, your client might face a 6 % charge on any amount exceeding the NRB. In this case, the excess £ 675,000 could result in a periodic charge of £ 40,500. Plus, they would encounter an exit charge when funds are withdrawn from the trust.
Splitting the case into four plans:
Day 1 Policy 1 £ 250,000 Trust 1 Day 2 Policy 2 £ 250,000 Trust 2 Day 3 Policy 3 £ 250,000 Trust 3 Day 4 Policy 4 £ 250,000 Trust 4
Each plan is lower than its NRB of £ 325,000 and therefore avoids periodic and exit charges, in our example above, it saves the beneficiaries over £ 40,000. This can all be done with one quote, application and underwriting journey with online trusts. Your L & G Protection Business Development Manager will be able to support you with the entire process.
To learn more about how protection can be a costeffective IHT solution, check our latest webinar at; adviser. LegalAndGeneral. com / IHTwebinar.
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| PROTECTION ADVISER | AUTUMN 2025 | 15