Writing a life insurance policy in trust is one of the most straightforward and high-value planning steps available to UK policyholders. It costs nothing, takes 20 minutes to arrange, and can save a significant amount of inheritance tax while ensuring that the policy proceeds reach the intended beneficiaries quickly and without dispute.
Despite this, the majority of life insurance policies in the UK are not written in trust. Many policyholders are unaware of the option, or assume it requires complex legal arrangements. The reality is that most insurers provide trust deed templates that are quick to complete — and for many policies, the standard forms are entirely adequate.
This guide explains why writing in trust matters, the main trust types available, settlor exclusion rules, and the ongoing duties that trustees must fulfil. It also identifies situations where a more bespoke arrangement — drafted by a solicitor — may be appropriate.
This is general information only. Trust law, tax treatment, and insurance regulations are complex and jurisdiction-specific. You should take qualified legal and financial advice before creating any trust arrangement, particularly for high-value policies or complex family circumstances.
Why Write Insurance in Trust?
Inheritance Tax (IHT) Saving
If a life insurance policy is not written in trust, the proceeds form part of the policyholder's estate on death and are included in the estate value for IHT purposes. At the current UK IHT rate of 40% on estates above the nil-rate band (£325,000, plus the residence nil-rate band where applicable), this means that up to 40p in every £1 of life insurance proceeds could be paid to HMRC rather than to the beneficiaries.
Example: a £500,000 life policy not written in trust, where the estate is above the IHT threshold. IHT on the £500,000 proceeds: up to £200,000. Net to beneficiaries: £300,000. The policy was designed to provide £500,000 to the family — without a trust, 40% of it may disappear in tax.
The same policy written in trust falls outside the estate, is not subject to IHT, and the full £500,000 reaches the beneficiaries.
Faster Payment: No Probate Delay
When someone dies, their estate must go through probate (the legal process of administering the estate and validating the will) before most assets can be distributed. This process can take months, sometimes over a year in complex estates. Assets outside the estate — including policy proceeds held in trust — can be paid out without waiting for probate.
A family facing bereavement and immediate financial pressure (mortgage payments, school fees, household bills) benefits from trust-held insurance proceeds that can be paid within days or weeks of the claim being settled, rather than waiting for the estate to be administered.
Directing Proceeds to the Right Beneficiaries
A policy not written in trust is paid to the estate and distributed according to the will (or the intestacy rules if there is no will). This means the policy proceeds may end up in the wrong hands if:
- The will is out of date and does not reflect current wishes.
- The estate is contested.
- The deceased died intestate (without a will) and the intestacy rules do not reflect their wishes.
A trust allows the policyholder to nominate beneficiaries directly, with flexibility to change them over time (in a discretionary trust) or to fix them permanently (in an absolute trust). The trustees have a legal obligation to distribute the proceeds to the named beneficiaries in accordance with the trust terms.
Types of Trust
Absolute Trust (Bare Trust)
An absolute trust names specific, fixed beneficiaries who have an unconditional right to the trust assets. Once the trust is created and the beneficiaries are named, they cannot be changed.
Advantages: simple to administer, no discretion required from trustees, trust assets pass to named beneficiaries without dispute.
Disadvantages: inflexibility — if a named beneficiary dies before the policyholder, or if circumstances change (divorce, estrangement, new children), the trust cannot be updated. The beneficiary may also have an immediate interest in the trust that creates complications if they are a minor.
Absolute trusts are appropriate where the beneficiary picture is clear and unlikely to change — for example, naming an adult sibling as the sole beneficiary of a term policy.
Discretionary Trust
A discretionary trust names a class of potential beneficiaries (typically "spouse, children, and grandchildren") and gives the trustees discretion over how and when to distribute proceeds within that class. No beneficiary has a fixed entitlement.
Advantages: extremely flexible — the trustees can respond to circumstances at the time of the claim. If the policyholder's marriage has ended, a new child has been born, or one beneficiary has become financially vulnerable, the trustees can exercise discretion appropriately. New beneficiaries can be added (within the class) without amending the policy.
Disadvantages: the trustees must exercise genuine discretion, which requires ongoing engagement. For large trusts, there may be income tax and IHT reporting obligations. If the trust holds value above the nil-rate band, periodic 10-year anniversary charges and exit charges may apply under the relevant property trust regime.
Discretionary trusts are appropriate for most personal life insurance arrangements and are the most commonly used structure for whole-of-life and term assurance.
Split Trust
Some insurers offer a split (or flexible) trust structure that separates the critical illness or terminal illness benefit from the life insurance payout. This can be useful where the policyholder wants the critical illness benefit paid to themselves (for treatment costs) while the life insurance proceeds go to the trust beneficiaries.
For combined life and CI policies, a split trust allows the CI element to revert to the policyholder while the life element remains in trust — maintaining the IHT planning objective for the life benefit.
Settlor Considerations
The settlor is the person who creates the trust — typically the policyholder. In trust law, if the settlor retains any benefit from the trust assets, it can compromise the IHT position of the trust.
Settlor exclusion: most insurer-provided trust deeds include a settlor exclusion clause, which means the settlor (and their spouse or civil partner) is explicitly excluded from benefiting from the trust. This is essential to ensure the trust falls outside the estate for IHT purposes — if the settlor can benefit, HMRC may treat the trust assets as still part of their estate.
This creates a practical issue for married couples: if you write a joint life first death policy in trust with your spouse excluded as a beneficiary, and you die first, your spouse cannot receive the payout directly. The trustees must distribute to the children or other named beneficiaries. This is one reason why separate single-life policies are often preferable to joint policies in a trust planning context — each policy can name the surviving partner as a beneficiary, since the trust on each individual policy does not require exclusion of the other partner from that specific trust.
Trustee Roles and Responsibilities
Trustees are the legal owners of the trust and are responsible for managing and distributing the trust assets in accordance with the trust deed. Key responsibilities:
Accepting the trust: trustees must formally accept appointment.
Communicating changes: trustees should be informed of any relevant changes in the policyholder's circumstances (marriage, divorce, new children) that might affect the exercise of their discretion.
Lodging the claim: on the policyholder's death, trustees (or one of them) lodge the insurance claim with the insurer.
Distributing the proceeds: trustees distribute the proceeds to beneficiaries in accordance with the trust terms and the exercise of their discretion (in a discretionary trust) or the fixed terms (in an absolute trust).
Record keeping: for discretionary trusts, trustees should keep minutes of their decisions and retain evidence of how their discretion was exercised.
Tax reporting: for discretionary trusts that accumulate value above the nil-rate band, IHT reporting (IHT100) may be required at the 10-year anniversary. For most term assurance policies (which only have value at death), this is not a practical concern during the policy term.
Most individuals name their spouse and one or two adult friends or family members as co-trustees. Using a professional trustee (a solicitor or trust company) adds cost but provides continuity and professional governance for high-value policies.
When to Use a Bespoke Trust Drafted by a Solicitor
Insurer-provided trust forms are adequate for straightforward arrangements. Consider instructing a solicitor to draft a bespoke trust deed where:
- The policy has a very high sum assured and the trust will hold significant assets.
- There are complex family arrangements (blended families, children from different relationships, vulnerable beneficiaries).
- The policyholder is non-UK domiciled and there are cross-border implications.
- The trust needs to interact with a broader estate plan (wills, other trusts, business succession arrangements).
- There is any uncertainty about the appropriate beneficiary class or trustee structure.
The cost of a bespoke trust deed is modest in relation to the value it protects and the clarity it provides.
Business Protection and Trusts
Business protection policies — shareholder protection and key person insurance — are handled differently from personal policies:
Own-life policies in trust: under cross-option shareholder protection arrangements, each shareholder writes their own life policy in an absolute trust for the other shareholders. On death, the trust pays the surviving shareholders, who use the proceeds to buy the deceased's shares from the estate. This keeps the proceeds out of the deceased's estate and provides certainty of funding for the buyout.
Company-owned policies: key person policies are typically owned by the company, not written in trust. The company receives the payout and uses it to fund the business impact of losing the key person.
Practical Steps
Writing a policy in trust involves:
- Completing the insurer's trust deed form (available from the insurer or adviser).
- Naming the trustees (typically you plus one or two others).
- Identifying the beneficiary class or named beneficiaries.
- Dating and signing the deed with the trustees.
- Returning the completed deed to the insurer for attachment to the policy.
For existing policies not currently in trust, most insurers allow the trust to be added retrospectively. There is typically no additional premium.
How Global Investments Can Help
Global Investments advises individuals and business owners on the full range of life insurance trust structures — from standard insurer-provided discretionary trusts for term and whole-of-life policies through to bespoke arrangements for high-value policies, offshore structures, and internationally mobile clients.
We can review your existing policies to identify those that are not in trust and should be, advise on the appropriate trust type for your circumstances, and work alongside your solicitor where a bespoke deed is required.
For internationally domiciled clients, we advise on the interaction of UK trust law with the law of the country of residence and domicile.
Please contact us to arrange a review.
This guide reflects UK law and practice as at June 2026. Trust law, IHT, and insurance regulation are complex and subject to change. This article is for general information only and does not constitute legal, tax, or regulated financial advice. Always seek independent qualified advice before creating any trust.
This guide is for general information only and does not constitute financial or insurance advice. Policy terms, premium rates, and insurer eligibility criteria change — always verify current terms with a qualified independent adviser before taking out any policy.