Life insurance in trust: what it means and how to set it up
What writing life insurance in trust means, why it can speed up the payout and keep it outside your estate, and how the trust is set up and kept up to date.
What does putting life insurance in trust mean?
Putting a life insurance policy in trust means transferring ownership of the policy to trustees, who hold it for the beneficiaries you have chosen and receive the payout when you die. HMRC's manual treats a life policy as an item of property that can be placed in trust, and the roles are the ones GOV.UK describes for every trust: you are the settlor who puts the asset in, the trustees are the legal owners, and the beneficiaries are the people it is held for.
The alternative is to leave the policy in your own name. MoneyHelper explains that the money from a single policy with no named beneficiary is paid into your estate, and it warns that this can take a long time to reach the person you had in mind and may mean the money is subject to inheritance tax.
Why do people write life insurance in trust?
There are two main reasons, which are that the payout is usually quicker and that it is usually outside the estate for inheritance tax. Because the trustees own the policy, the insurer can pay them without waiting for a grant of probate (confirmation in Scotland), and MoneyHelper's guide to getting your finances in order suggests writing the proceeds in trust so that they are easily available after your death and do not form part of your estate.
The timing matters most where the money is meant to pay an inheritance tax bill. GOV.UK's guidance on paying inheritance tax says the tax is due by the end of the sixth month after the death and that a payment is usually needed before the grant is issued, and Which? notes that a payout held by trustees can help the family pay that bill sooner. A trust also lets you direct the money to someone who would not inherit automatically, and Which? gives the example of an unmarried partner, who receives nothing under the intestacy rules if there is no will.
The reasons are weaker in some situations. If everything you own is going to your husband, wife or civil partner, the spouse exemption normally means there is no inheritance tax on it anyway, so the trust mainly affects speed. A trust also only deals with the policy, so you still need a will for the rest of what you own.
Is life insurance subject to inheritance tax?
It is if the payout lands in your estate. HMRC's manual on life policies and inheritance tax says that where the person who died was the life assured, the proceeds form part of their estate and are taxable on their death, so a policy in your own name is added to your other assets before the £325,000 nil rate band and any other allowances are set against the total. As an illustration, on an estate already above its allowances and passing to someone other than a spouse, civil partner or charity, a £200,000 payout would add £80,000 of tax, which is 40% of £200,000.
A policy written in trust for other people is normally left out, because it belongs to the trustees rather than to you. The exception is where you can still benefit from the policy yourself, since HMRC's manual notes that the gift with reservation rules can then bring it back into your estate. Our guide to reducing inheritance tax legally sets the trust alongside the gift exemptions and other allowances.
How do you put a life insurance policy in trust?
In most cases you complete the insurer's own trust form, either when you take out the policy or afterwards. Which? reported in July 2026 that most insurers offer a trust as part of the application and that there is normally no extra charge, whilst adding one to an existing policy is possible but may involve more paperwork, and help from a solicitor or financial adviser may come at a cost. The form asks you to make three decisions.
The type of trust: usually a choice between a bare trust and a discretionary trust, which the next section explains.
The trustees: the people who will claim the money and pass it on. Which? says they can be family members, friends or a solicitor, and suggests choosing people you will easily be able to contact in future who, ideally, are not also beneficiaries. You can be a trustee yourself, although it helps to have at least one other, for the reasons given below.
The beneficiaries: the people the money is for, such as a partner or children.
Putting a policy in trust is hard to undo. Which? warns that you generally cannot simply change your mind afterwards and that it may be difficult to change the beneficiaries or take the policy back out, and its October 2026 guide to mistakes to avoid when putting life insurance in trust says specialist advice is worth seeking so that the trust is set up correctly. Advice is also usually worth paying for where the cover is large or your family circumstances are complicated.
Which type of trust is used for life insurance?
Insurers generally offer two kinds, which differ in how fixed the beneficiaries are. GOV.UK's guide to the types of trust defines both.
Bare trust: the beneficiaries are named at the start and are entitled to the money outright, which GOV.UK says they can take once they are 18 in England and Wales or 16 in Scotland. Which? notes that a bare trust generally locks in your beneficiaries, so a later child or a divorce cannot easily be reflected.
Discretionary trust: you name a group of possible beneficiaries and the trustees decide who receives the money, how much and when. That gives room for circumstances to change, although it hands the decision to the trustees, which is why people usually leave them a letter of wishes, and our guide to the letter of wishes explains how one works. Our guide to discretionary trusts covers this kind of trust in general.
Are the premiums or the trust itself taxed?
Each premium you pay on a policy held for someone else is a gift for inheritance tax, although it is often an exempt one. HMRC's manual says that paying a premium on a policy owned by somebody else is a transfer of value after taking account of any exemption due, and the two most likely to apply are the £3,000 annual exemption and the exemption for normal expenditure out of income, which covers regular payments from income that leave your usual standard of living unaffected. Your executors will still be asked about premiums paid in the 7 years before your death.
Moving an existing policy into trust is also a gift, this time of the policy's value on the day of the transfer. HMRC's manual says that value is normally the open market value, which can be more than the surrender value, and that a term policy never has a surrender value although it may have a market value, so it is worth asking for the figure before transferring an older policy.
A discretionary trust also sits within the rules for relevant property trusts. GOV.UK's guidance on trusts and inheritance tax says tax is due, at 20% if the trustees pay it, on the amount by which your transfers into trust and other chargeable gifts in the previous 7 years exceed £325,000, and that charges of up to 6% can apply at each 10-year anniversary, where the value of what the trust holds is above the threshold, and when assets leave. Premiums covered by an exemption do not count towards that total, so the charges matter mainly where a large payout is still sitting in the trust when an anniversary falls.
What can go wrong with a life insurance trust?
Most problems come from the trust being set up and then forgotten. Which? surveyed 2,111 members of its Which? Connect panel in September and October 2026 and reported that 39% had never reviewed their trust policy, and the usual consequences are these:
No trustee who can act. If you are the only trustee, or the others have died before you, nobody is left to claim. In England and Wales, section 18 of the Trustee Act 1925 lets the personal representatives of the last surviving trustee act until new trustees are appointed, but it does not count an executor who has not yet obtained probate, so the claim is likely to wait for a grant after all.
Trustees who cannot be found or will not act. Which? points out that the trustees' involvement is needed to make changes and to claim, so unreliable or out-of-touch trustees can delay the payout.
Out-of-date beneficiaries. A bare trust naming a former partner still pays that person, and a discretionary trust is only as current as the letter of wishes left with it.
A policy left out of trust. A trust only covers the policies placed in it, so a new or replacement policy pays into your estate unless it is put in trust too.
Nobody knows the trust exists. The trustees usually claim with the death certificate and the trust deed, so they need to know where the deed is.
Scotland has its own rule on trustees. HMRC's manual says a policy trust there needs two trustees or some form of delivery, so a sole trustee does not create a valid trust, other than for policies taken out for a spouse, civil partner or children under the Married Women's Policies of Assurance (Scotland) Act 1880.
How do joint life policies, death in service and pensions fit in?
A joint life policy usually pays the surviving policyholder directly, and MoneyHelper notes that joint cover only pays out once, on the first death. Between spouses or civil partners the spouse exemption usually means there is no inheritance tax on that payment in any case, so a trust adds less, whereas for an unmarried couple there is no such exemption and how the policy is owned matters more. A joint policy that pays only on the second death carries on after the first, so ask the insurer which kind you have and what trust it offers for it.
Death in service benefits and pensions are separate arrangements, which are dealt with under the scheme's own trust or rules rather than through a trust form from an insurer. You tell the scheme who you would like to benefit on an expression of wish or nomination form, which MoneyHelper says is worth updating when your circumstances change, and our guide to death in service benefit explains how the trustees use it.
Does a life insurance trust need to be registered with HMRC?
Usually not. Most express trusts have to be registered on HMRC's Trust Registration Service within 90 days, but GOV.UK's page on when you must register a trust excludes a trust that holds life policies paying out only on death, terminal or critical illness or permanent disablement, provided the trust is not liable to UK tax. After the death, the exclusion continues for money paid out of the trust within 2 years, so trustees who hold the payout for longer have to register at that point. HMRC's manual adds that the exclusion is lost if the trust also holds other assets, and that it does not cover investment bonds designed to pay regular withdrawals.
What to do next if you want your life insurance in trust
List every life policy you have and ask each insurer whether it is already in trust.
Ask for the insurer's trust forms and guidance, and decide between a bare and a discretionary trust.
Choose at least one trustee besides yourself, and ask them before you name them.
If the trust is discretionary, write a letter of wishes and keep it with the trust deed.
Tell your trustees and executors where the policy and the deed are kept.
Review the trust after a marriage, separation, birth or death, and whenever you take out new cover.
After your death the trustees claim on the trust policy, whilst your executors still have to find and tell every bank, utility, insurer and subscription in your own name, which is far easier when you have left a clear record of what you held. If that work does fall to your family, Legacy Trail's free notification service can contact the private-sector companies for them, and our guides to finding and claiming life insurance after a death and form IHT410 cover the claim and the inheritance tax paperwork from their side.
Frequently asked questions
It depends on who you want to receive the money and how quickly. A trust usually keeps the payout outside your estate and avoids the wait for probate, but it is difficult to reverse and needs trustees who stay in touch, so it suits people who are clear about their beneficiaries.
Which? reported in July 2026 that most insurers offer a trust when you apply and that there is normally no extra charge. You would pay if you asked a solicitor or financial adviser to draft a bespoke trust or advise on the tax.
Yes, an existing policy can be put in trust later, although it may involve more paperwork than doing it at the start. The transfer is a gift of the policy's value on that day for inheritance tax, so it is worth asking what that value is first.
Yes. The difficulty comes if you are the only one, because the claim is made after your death, so having at least one other trustee who is likely to outlive you avoids a delay.
Not usually. The trustees own the policy, so they can normally claim with the death certificate and the trust deed, without a grant of probate, although each insurer sets its own requirements.
With a bare trust the beneficiaries are generally fixed once the trust is set up. With a discretionary trust the trustees choose from the group named in the deed, so you can update your letter of wishes, and any wider change has to be allowed by the trust's terms.
This article is for general information only and does not constitute legal advice. Individual circumstances vary. If you are dealing with an estate, consider taking advice from a solicitor who specialises in probate. For other guidance specific to your circumstances, speak to a funeral director, Citizens Advice, or a regulated financial adviser.