Writing a life insurance policy in trust: a simple guide
Putting a life insurance policy "in trust" sounds complicated and legal, but it's usually one of the simplest and most valuable things you can do when you take out cover. Here's what it means and why it matters.
What "in trust" means
A trust is just a legal arrangement where trusted people, called trustees, look after your life insurance policy on behalf of the people you want to benefit. You choose the trustees (often your partner, a relative or a friend) and the beneficiaries (usually your family). When you die, the payout goes to the trustees, who pass it to your chosen people.
Why it's worth doing
- It can avoid inheritance tax. Because the payout belongs to the trust rather than to your estate, it usually isn't caught by the 40% inheritance tax charge that can apply to money above the £325,000 allowance.
- It's faster. Trustees can normally pay the money out within days, rather than your family waiting months for probate.
- You stay in control. You decide who receives what, and you can make sure the right people are looked after.
How to do it
The easiest time to do it is right at the start, when you take out the policy. Ask your broker or insurer for their trust form, decide who your trustees and beneficiaries will be, and complete it. If you already have a policy, you can often put an existing one in trust too, though it's worth getting advice to make sure it's done correctly.
The one thing to remember
If there's a single question to ask when you buy life insurance, it's this: "Can this be written in trust?" It's a small step that can make a big difference to how much of the payout actually reaches your family. If you're unsure, an independent adviser or a solicitor can set it up properly for you.
Information only. This is general information, not financial, tax or legal advice, and not a personal recommendation. Tax rules depend on your circumstances and can change. Please speak to a qualified, FCA-regulated adviser or a solicitor before acting.