Readers' forum: Life interest

My married clients took out a ‘second death’ life insurance policy which was written in trust for their four children. The policy was taken out in 1998 before the 2006 inheritance tax changes. The trust gave a life interest of 25% to each of the four children although due to the nature of the policy no income has been produced.

All parties (settlors trustees and beneficiaries) agree that the benefits of the policy when eventually realised on second death should ‘skip’ a generation and be paid to the settlors’ grandchildren. It seems that this would for inheritance tax purposes constitute a termination of a life interest for the four children and a new settlement would arise. This would mean the rights under the policy would be ‘relevant property’ under the rules applicable since 22 March 2006. I should be grateful for...