Life insurance in trust explained

When you set up life insurance, there is an important choice to make alongside it. Whether to place your policy in trust. 

It may seem like a small step, but it can make a big difference to how your policy works in practice and how quickly your loved ones receive the payout.

What is a life insurance trust? 

A life insurance trust is a formal legal arrangement. It is set out in a legal document that confirms who will receive the payout and who is responsible for managing it. 

When your policy is placed in trust, it is held separately from your estate. This means the payout can be managed by trustees and passed directly to your chosen beneficiaries. 

It helps make sure the money goes to the right people, in line with your wishes and without unnecessary delay.

Why people put life insurance in trust 

Most people take out life insurance to support their loved ones. But without a trust, the payout may form part of your estate.

This can lead to delays while probate is completed and, in some cases, may affect how the money is passed on.  Putting your policy in trust helps reduce these risks.

It is one of the simplest ways to make sure your policy works in the way you expect.

Who is involved in a life insurance trust? 

A trust is a legal arrangement with three key roles: 

Settlor - the person who sets up the trust and places the policy into it. This will usually be you. 

Trustees - the people legally responsible for managing the trust and making sure the payout goes to the right beneficiaries. You can be one of the trustees. 

Beneficiaries - the people who will receive the payout from the policy. 

These roles are defined in the trust document when it is set up. 

What are the benefits of putting life insurance in trust? 

There are three main reasons people choose to do it.

Faster access to the payout. The policy can usually be paid without waiting for probate.

Clear control over who receives it. You decide who should benefit from your policy. 

Potential inheritance tax benefits. Because the policy is outside your estate, it may not be counted when inheritance tax is calculated.

What are the downsides to consider?

A trust is not always the right choice for everyone. Once set up, it can be less flexible. 

Changing trustees or beneficiaries usually requires a formal update. You also give trustees legal responsibility for managing the payout. 

This is why it is important to understand how a trust works before putting one in place. 

Trust vs nomination of beneficiaries 

Some insurers now offer the option to nominate beneficiaries instead of using a full trust. 

This allows you to state who should receive the payout without setting up a formal legal structure. This can be simpler and easier to update. However, it may not offer the same level of control or inheritance tax advantages as a trust. 

Both options can be useful, depending on your circumstances.

Setting up a trust with LifeSearch

If you take out life insurance through LifeSearch, we can help you set up a trust correctly from the start. We work with Genie to provide a standard trust solution that is widely accepted by insurers. 

Genie also supports the coordination behind the scenes. This includes working with insurers, trustees and the necessary paperwork to make sure everything is completed and recorded properly. 

This helps reduce the risk of errors and ensures the policy is set up to pay out as intended. 

There is no cost to you for setting up a trust through us.