How to put your policy in Trust

Trusts are a legal arrangement that allow you to leave assets to relatives, friends or anyone else you pick to be your beneficiaries. You choose trustees to manage your trust until it pays out – these are normally family members, friends, or a legal professional – which normally happens upon your death, or a later date such as when a child turns 18. Your life insurance policy can be written into trust. One of the main benefits of doing this is that the value of your policy is generally not considered part of your estate.

There are many reasons why putting life insurance in trust is a good option. 

1 - Your beneficiaries can get faster access to your money – without a trust, when you die your beneficiaries might need to obtain probate, which can cause delays. With a trust in place, your loved ones could receive the inheritance within weeks of the death certificate being issued.

2 - It gives you greater control over your assets – if you don’t have a trust, your money might be used to pay off outstanding debts before any left overs reach your loved ones. Putting life insurance in trust allows you to decide who to appoint as your beneficiaries and trustees, ensuring the proceeds of your policy go directly to them and not your estate. Setting up a trust is especially important if you’re not married or in a civil partnership, otherwise your assets may not automatically transfer to your intended recipient.

3 - It might allow you to protect your beneficiaries from Inheritance Tax – writing your life insurance policy into trust means the money paid out from your policy should not be considered part of your estate. There are some exceptions; for example, you may be liable for an Inheritance Tax charge on the value of the property on each ten-year anniversary. Currently, the standard Inheritance Tax rate is 40%, which is charged on the part of your estate above the £325,000 threshold.

Settlor – This is the policy owner, usually the life assured, and the person who is responsible for paying the monthly premiums. 

Trustee – You appoint a trustee or trustees to oversee the trust (we recommend appointing at least two trustees). These could be trusted family members, friends or perhaps a solicitor. The trustees role is to ensure that the assets contained within the trust go to your named beneficiaries/automatic beneficiaries and is shared in the way you had intended. 

Beneficiaries – These are the people who will ultimately benefit from your policy pay out and receive the funds. Some trusts have automatic beneficiaries – spouses, children, grandchildren etc, and others have named beneficiaries where you specifically name the people you want to benefit.

Once your trust is set up, your trustees legally own the policy and must keep the trust deed safe – they can ask a solicitor to store the documents, or find a safe place in their home. Your trustees will ultimately make a claim to your insurer when you pass away, so they will need the trust deed close to hand. It’s worth remembering that as the settlor, you maintain responsibility for making sure your life insurance premiums are paid. It may be beneficial to hire a legal adviser to ensure the legal wording of your trust agreement appropriate for your needs.

Our Partners at Generational Wealth will work with you to help you remove or change a Trustee, if this is your wish.

Trusts are most commonly used for Term and Whole of Life policies. If the policy is arranged on a joint life basis, a trust is only required if the intended beneficiary is not the other policy owner. 

Policies that include Critical Illness cover along with Life insurance can also be placed under trust, ensuring that any Critical Illness payments are paid to the policy owner in the event of illness, but paid to the trust in the event of death. 

Income Protection policies are not placed under trust as they pay out in the event of ill health to replace your income. 

Business Protection policies – your adviser will confirm which policies require a trust, but in many cases a trust will be required for business protection policies to ensure that the proceeds of any policy arranged go to the correct beneficiaries.

The process of writing a life insurance policy in trust is very simple. With LifeSearch, you can arrange this when you initially take out the policy, and there is not any charge for doing so, however a life insurance policy can be put into trust at any time. Please see the links higher up the page which direct you to our Partners at Generational Wealth, who can help place your policy into Trust at a time that suits you.

Once you have placed your policy into trust, you hand legal ownership of your policy over to your trustees.

Once you’ve put a policy in trust, it normally can’t be taken out of trust again.