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Life Assurance · 6 min read

Writing life insurance in trust

A free piece of paperwork that can keep a six-figure payout out of your estate, out of probate, and out of reach of a 40% tax charge. Here's how it works and what you give up.

Last updated: August 2026

Key takeaways
  • ✔ The payout normally sits outside your estate, so it escapes inheritance tax
  • ✔ Trustees can be paid without waiting for probate — often months faster
  • ✔ You choose exactly who benefits, independently of your will
  • ✔ Insurers provide standard trust forms free; it usually costs nothing to set up
  • ✔ It can be done on an existing policy, not just a new one
  • ✗ A trust is generally irrevocable — you cannot simply take the policy back

What a trust actually does

A trust separates the legal ownership of the policy from the benefit of it. Three roles are involved:

  • The settlor — you, the person giving the policy away
  • The trustees — the people who legally hold it and administer the claim, usually including you
  • The beneficiaries — the people who receive the money

Because the policy no longer belongs to you, the payout is not part of your estate when you die. The insurer pays the trustees, and the trustees pay the beneficiaries. Nothing about the cover, the premium or the claims process changes.

The inheritance tax reason

Inheritance tax is charged at 40% on the value of an estate above the available allowances. A life policy that is not in trust adds its full payout to your estate — which can push an estate over the threshold that would otherwise have been under it.

Illustration. An estate worth £400,000, plus a £300,000 life policy, leaving everything to a non-exempt beneficiary such as an adult child.

Policy not in trust: the estate is valued at £700,000. Everything above the available nil-rate allowances is taxed at 40%, and the policy proceeds are part of the taxable total.

Policy in trust: the estate is valued at £400,000 and the £300,000 passes directly to the beneficiaries outside it, potentially removing the liability altogether.

Transfers between spouses and civil partners are exempt from inheritance tax, so a policy paying a surviving spouse faces no immediate charge either way. The trust still helps on the second death, and still avoids probate on the first.

Set your policy up properly from the start

A Charles Frank Finance adviser can arrange cover and the trust paperwork together. No obligation.

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The probate reason

If a policy is not in trust, the insurer generally pays the estate — and the estate cannot be distributed until probate is granted. That commonly takes several months, and longer where the estate is complex or the application is queried.

In the meantime, the mortgage still has to be paid and the household still has to run. A policy in trust bypasses this entirely: the trustees claim on production of the death certificate and can pay the beneficiaries within weeks.

For a family whose main reason for buying cover was keeping the roof over their heads, this is often the more immediately valuable of the two benefits.

Which type of trust

Bare (absolute) trust

Beneficiaries are named at outset and fixed permanently. Simple, certain, and the money belongs to them from the moment the trust is made.

Suits a settled situation — for example, a policy for two adult children whose circumstances are unlikely to change.

Discretionary trust

You name a class of potential beneficiaries; the trustees decide who gets what, guided by a letter of wishes you leave alongside the deed.

Suits changing circumstances — future children, unmarried partners, blended families. The most commonly recommended option.

A third form, the split trust, is used where a policy combines life cover with critical illness. It directs the death benefit to your beneficiaries while retaining the critical illness benefit for you — because a lump sum on your own diagnosis is meant to be yours to spend.

How to set one up

  1. Ask the insurer for their trust form — every major UK insurer has standard deeds, free to use.
  2. Choose the trust type — usually discretionary unless your situation is fixed and simple.
  3. Appoint your trustees — at least two, likely to outlive you, and willing to do the paperwork.
  4. Name the beneficiaries or the class of potential beneficiaries.
  5. Write a letter of wishes if the trust is discretionary — not binding, but it tells the trustees what you intended.
  6. Sign and witness the deed, return it to the insurer, and keep a copy where your trustees can find it.

Tell your trustees the policy exists. A trust nobody knows about is claimed no faster than one that was never written.

When a trust is not the right answer

  • Mortgage-linked cover assigned to a lender — where the policy is already assigned to secure the debt, a trust may not be appropriate.
  • Business protection arrangements — shareholder and key person cover generally use different structures, such as cross-option agreements.
  • Where you may need the money yourself — a combined life and critical illness policy needs a split trust, not a standard one.
  • Complex or contested family situations — worth paying a solicitor for a bespoke deed rather than using a standard form.

Frequently asked questions

What does writing life insurance in trust mean?
It means legally transferring ownership of the policy to trustees, who hold it for the benefit of the people you name. The policy is no longer yours, so the payout does not form part of your estate on death — it is paid to the trustees, who pass it to your beneficiaries.
Why put life insurance in trust?
Three reasons: the payout normally falls outside your estate for inheritance tax, so it is not taxed at 40% above the available allowances; trustees can be paid without waiting for probate, which often takes months; and you control who receives the money regardless of what your will says or how long it takes to prove.
Does it cost anything to write a policy in trust?
Insurers provide standard trust forms free of charge, and setting one up at the point of application usually costs nothing. A bespoke trust drafted by a solicitor costs more, and is generally only needed where family arrangements are complicated.
Can I put an existing policy in trust?
Yes. Most insurers will accept a trust deed on an existing policy at any point, using their own standard forms. It is not restricted to new applications, so an older policy that was never placed in trust can usually be corrected.
What is the difference between a bare trust and a discretionary trust?
A bare (absolute) trust fixes the beneficiaries at the outset and cannot be changed — simple, but inflexible if your family circumstances change. A discretionary trust lets the trustees decide which of a class of potential beneficiaries receives what, guided by a letter of wishes you leave them.
Who should I appoint as trustees?
You are normally a trustee yourself, alongside at least one other adult you trust — commonly a partner, adult child, sibling or close friend. Appoint more than one, since a sole surviving trustee can create delays, and choose people likely to outlive you and able to handle straightforward paperwork.
Can I change my mind after writing a policy in trust?
A trust is generally irrevocable, so the decision needs care. A discretionary trust preserves flexibility over who ultimately benefits, but you cannot simply take the policy back into your own name. Take advice before signing if your circumstances are likely to change materially.
Do I still need a will if my policy is in trust?
Yes. The trust deals only with the policy. Everything else you own — property, savings, possessions — passes under your will, or under the intestacy rules if you have not made one.

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Important: This guide is for information only and does not constitute financial, tax or legal advice. Trusts and inheritance tax treatment depend on your individual circumstances and may change in future. Trust and estate planning are not regulated by the Financial Conduct Authority. CleverCompare is an introducer appointed representative of Charles Frank Finance Limited, which is authorised and regulated by the Financial Conduct Authority.
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