Mortgage Life Cover in Trust (Discretionary Trust)
Placing your mortgage life insurance in trust can save Inheritance Tax. (mortgage life cover example)
In the event of your death, if your spouse survives you, he or she, who is a beneficiary, can receive the money and pay off the mortgage without having to wait for probate to be granted, which can result in less mortgage interest falling due. (If your mortgage life cover is 'frozen' pending grant of probate, there may be several months worth of interest building up, which will need to be paid by your family.)
In the event your spouse doesn't survive you, the trustees can pay the proceeds to your children (who are also beneficiaries) or to other beneficiaries, again, without waiting for probate to be granted.
If your mortgage life cover is in trust, it does not form part of your estate. This means that the outstanding mortgage remains as a debt against your estate and will therefore reduce, or even wipe out, any Inheritance Tax liability.
The trustees must use the proceeds for the benefit of beneficiaries, but it is obviously to the benefit of you spouse and/or your children to pay off the outstanding mortgage with the proceeds of the mortgage life insurance policy, giving your family the right to live in the family home 'mortgage-free'.
