IRAS response on assignment of mortgage life policy to bank

Recently, there were some lively debates on the press regarding estate duty and mortgage life insurance. Below is an email reply by IRAS to me on the estate duty treatment when one assigns a mortgage life policy to bank.

"If the policy is assigned to a bank and the proceeds are used to redeem the outstanding loan due by the deceased, there is no estate duty payable on the proceeds because there is no beneficial interest accruing or arising on the deceased's death to the bank.

However, if the proceeds exceed the outstanding loan as at the date of death, the excess is subject to estate duty.

The assignment is not subject to the 5 years rule. The bank need not pay the premium for such assignment of policy in order for the proceeds of the policy to be excluded from estate duty assessment."

Source: An email reply to me by IRAS, Ruling & Estate Duty Branch, on 13 Mar 2007.