If a life assurance policy is held in trust for a beneficiary, how should it be handled for IHT purposes?

When a life assurance policy is held in trust for a beneficiary, it is treated distinctly for Inheritance Tax (IHT) purposes. In this scenario, since the policy is in trust, it is excluded from the death estate of the person who has passed away.

The rationale behind this is that the assets in the trust do not form part of the deceased's estate for IHT calculation because the trust is a separate legal entity. Therefore, the proceeds from the life assurance policy will typically pass directly to the beneficiaries named in the trust, avoiding IHT implications on the deceased's estate.

This arrangement is significant as it allows for more efficient estate planning, ensuring that the intended beneficiaries receive the proceeds without the burden of being included in the deceased's estate for tax assessment purposes.

While other options touch on different aspects of taxation, they do not accurately reflect the treatment of life assurance policies held in trust under IHT law.