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Writing life insurance in trust: How does it work?

Many people with life insurance are unaware that they could increase the payout sum to their beneficiaries and speed up the payment process by writing their policy in trust. If you’re unsure what writing life insurance in trust is and how it works, follow our helpful guide below.

What is a trust?

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A trust is a contract that enables a person to transfer cash or assets, such as property or insurance, to a beneficiary as a gift. In this case, we are looking specifically at writing life insurance in trust.

Many policyholders are unaware of this option or don’t know how it works. Resulting in a relatively low number of people writing their life insurance in trust in the UK.

How it works

When you take out a life insurance policy, the provider will offer to write the policy in trust. You can choose whether to decline or accept and put someone in charge.

If you pass away during your life insurance policy term, the trustee will then be charged with ensuring the payout is made exactly how you wanted it.

If you pass away during your life insurance policy term, the trustee will then be charged with ensuring the payout is made exactly how you wanted it.If you pass away during your life insurance policy term, the trustee will then be charged with ensuring the payout is made exactly how you wanted it. You should note that once you put a life insurance policy in trust, it’s usually irreversible, so you must make sure that it’s the right decision for you.

What are the benefits of putting life insurance in trust?

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In simple terms, writing life insurance in trust enables policyholders to maximise the benefits of your policy for your beneficiaries. The main benefit points go as follows:

Circumvent a probate

When you pass away, the probate process in which your will is approved in court as a valid document representing your last testament can take months or even years to complete. As a result, your loved ones will not see your life insurance claim for a considerable time. This can be particularly detrimental if they need the funds to cover funeral or living costs.

In contrast, writing your life insurance in trust is separated from the rest of your estate. Therefore, out of the jurisdiction of the probate process. This means that your trustee can get on with distributing the policy payout within a matter of weeks.

You have more control over your policy

If you have outstanding debts and haven’t put your life insurance policy in trust, it could mean that the payout is obligated to be used to cover your debt instead of going to loved ones.

On the other hand, if you select a trustee to be in charge of overseeing the transfer of the funds, you can rest assured that the payout will go to whomever you intend it for.

Save on inheritance tax

In the UK, there is currently an inheritance tax threshold of £325,000, which means that the estate that you leave behind to your children or loved ones (excluding your spouse) will be subject to a government inheritance tax rate of 40%.

For example:

If the estate you leave behind is worth £400,000, the beneficiaries will be liable to pay 40% inheritance tax on £75,000 – the sum surpassing the threshold. However, your life insurance payout – say it’s worth £100,000 – is also included in your final estate value. So, in this example, it means that your estate would be liable for 40% inheritance tax on £175,000

To circumvent this issue, you can write your life insurance in will. This strategy ring-fences your policy, which is when you separate part of your assets from the rest. As a result, the insurance payout is transferred directly to the beneficiaries without being subject to inheritance tax.

How much does it cost to write your life insurance in trust?

This is perhaps the best part of writing life insurance in trust. The service is completely free and offered by most major insurance companies. You get the comfort of knowing a trusted friend or relative will oversee the payout of your life insurance policy, completely free.

What are the different types of trusts?

You should note that there are different types of trust options that will suit different needs. So, chances are there is a suitable choice for you. The options are:


This is the most straightforward type of trust. Through this process, you nominate the beneficiaries, who then receive a fixed value of your choosing from your life insurance payout. This type of trust cannot be amended at a later date.


In a flexible trust, you select the first beneficiaries. The trust then allows the addition of second beneficiaries – such as grandchildren or nephews. The trustee in charge can then change the first beneficiaries or the value to be split between the parties. This type of trust is best if you feel like circumstances might change in the future.


Of all the options, this is the most flexible. In a discretionary trust, you do not select any set beneficiaries. You only provide a list of ‘potential’ parties that could eventually benefit from your life insurance payout. The power to choose who receives part of the payout, in addition to the total value, falls directly to the trustee.

Note that you can share your wishes as to how the payout should be split in this option. However, the final decision falls to the trustee, should they disagree with your decision.

Can a trustee also be a beneficiary of the trust?

It’s entirely legal for a person to benefit from the trust and hold a trustee position. This type of arrangement is common among family trusts in the UK. However, if this trustee also has discretionary rights – so the power to choose who gets what and how much – you should consider naming an impartial trustee that won’t benefit from the trust.

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