Writing life insurance in trust: how it works in the UK

Inheritance Tax threshold

£325,000 [2]

Without a trust

Payout usually joins the estate

With a trust

Trustees can receive it

Protection claims paid 2025

97.9% [7]

What writing a policy in trust means

A trust is a legal arrangement where one person, the settlor, gives assets to trustees to hold for the benefit of others, the beneficiaries. When you write a life policy in trust, the policy itself becomes the trust asset. If a claim is paid, the insurer pays the trustees rather than your estate, and the trustees pass the money on according to the trust terms. HMRC’s guidance describes how trusts work and how they are treated for tax. [1]

Without a trust, a term life payout usually goes into the estate of the person who died. It is then dealt with alongside their other assets: debts are paid, any Inheritance Tax is calculated, and what is left passes under the will or the intestacy rules. That process normally needs a grant of probate or letters of administration, which can take months. [6]

Putting cover in trust does not change the policy’s benefits, premium or claim rules. It changes who legally owns the policy and who receives the money. Many insurers provide their own trust forms at no charge, and a trust can often be added after a policy has started, not only at application. Our guide to what term life insurance is explains the policy itself.

Why people use a trust

The most common reason is speed. Trustees can usually claim with a death certificate and the trust documents, without waiting for probate. That can matter when a family needs money for mortgage payments, childcare or everyday bills in the weeks after a death, rather than months later.

The second reason is control. A trust lets you say who should benefit, which is especially useful for unmarried partners, blended families, children from different relationships, or when you want money held for children until they are older. Without a trust, the payout follows your will or, if there is none, the intestacy rules, which may not reflect your wishes.

The third reason is tax. Money paid into a properly arranged trust is generally not part of your estate. GOV.UK explains that Inheritance Tax is usually charged at 40% on the part of an estate above the £325,000 threshold, with exemptions such as transfers to a spouse or civil partner. [2] A life payout that joins the estate can push its value over the threshold. HMRC’s manual explains how life policies are treated for Inheritance Tax. [3]

The main types of trust

Insurers commonly offer a small number of standard trust forms. Names vary, but they usually fall into three groups. The right one depends on how fixed or flexible you want the choice of beneficiaries to be, and each has different tax treatment. HMRC summarises the main trust types and how they are taxed. [4]

An absolute or bare trust names beneficiaries who cannot later be changed. It is simple and certain, but inflexible: if circumstances change, such as a separation or a new child, you cannot redirect the money.

A discretionary trust names a wider group of possible beneficiaries, and trustees decide who receives what and when, often guided by a letter of wishes. It offers flexibility for changing families, but trustees carry more responsibility and some tax charges can apply in certain circumstances.

A flexible trust usually names default beneficiaries and a wider group trustees can choose from. It sits between the two. Many insurers’ forms also let the settlor receive certain benefits, such as a terminal illness payout, through a split or “survivor’s” arrangement. Read the form carefully to see how living benefits are handled.

Choosing trustees

Trustees make the claim, receive the money and pay it out, so choose people who are trustworthy, organised and likely to be available. Many people choose two or more trustees so that one can act if another cannot. As the settlor you may be a trustee yourself while alive, but you also need trustees who will be able to act after your death.

Think about conflicts. A former partner may not be a suitable trustee after separation. A trustee who is also a beneficiary can be appropriate, but a mix of people can help balance interests. Tell your trustees they have been appointed, where the documents are kept and which insurer holds the policy.

Keep the trust under review. Marriage, divorce, new children or the death of a trustee may mean changes are needed. Some changes, such as adding or removing trustees, are usually possible through the insurer’s forms. Others, particularly under an absolute trust, may not be. If a situation is complicated, a solicitor can advise.

1. Decide who should benefit

   List the people the money is for and whether that may change.

2. Pick the trust type

   Choose between fixed, discretionary or flexible arrangements.

3. Choose trustees

   Name at least two reliable people who agree to act.

4. Complete the insurer’s form

   Use the insurer’s trust deed and keep a signed copy.

5. Write a letter of wishes

   Explain your intentions to guide trustees, where the trust allows it.

6. Tell people and store documents

   Let trustees know where the policy and trust papers are.

Tax points to understand

Term policies usually have no cash value while you are alive, which keeps their tax treatment simpler than investment policies. When a claim is paid into a correctly arranged trust, the money is generally outside the estate of the person who died. HMRC explains that some trusts can face charges at ten-year anniversaries or when money leaves the trust, depending on the trust type and value. [1]

Who pays the premiums also matters. Premiums paid regularly from your normal income usually fall within Inheritance Tax exemptions for normal expenditure, but that depends on your circumstances. HMRC’s trust tax guidance explains the reporting rules for different trusts. [5] This guide is general information, not tax advice; for larger estates or business situations, take professional advice.

Current thresholds matter too. HMRC’s published Inheritance Tax thresholds confirm the nil-rate band, and a residence nil-rate band may apply when a home passes to direct descendants. [8] Thresholds and rules can change, so check the latest guidance before relying on them.

When a trust may not be needed

A trust is not always necessary. If a policy is assigned to a mortgage lender, or if the estate is small and the beneficiary is a spouse who would inherit anyway, a trust may add little. For joint first-death policies, trust wording needs to work for whichever partner dies first. Our joint vs single guide explains why single policies can be easier to place in separate trusts.

Context helps. The ABI reported that protection insurers paid 97.9% of new individual protection claims in 2025. [7] A trust does not change whether a claim is paid; it changes where the money goes and how quickly. The FCA’s market study noted a substantial protection gap in UK households, which makes getting existing cover to the right people all the more important. [9]

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