Ever wondered whether your life insurance proceeds are…
In this guide, we explain everything you need to know about putting your life insurance in trust (without too much jargon). Topics include:
As of June 2023, Reassured has helped more than 12,000 people write their life insurance in trust and take control this important asset.
Make the most of our award-winning broker service to compare life insurance quotes, save money and secure the financial future of your loved ones.
When you take out life insurance, you may be given the option to write your policy in trust.
This is a free option which allows you to specify who’ll benefit from your policy (the beneficiaries) in the event of your death.
A trust is a legal arrangement where certain people (the trustees) are given your permission (the settlor) to manage the policy on behalf of your beneficiaries.
You’ll both sign a trust document which sets out the rules of your trust and how you wish your life insurance to be distributed.
When you pass away, it’s the trustees’ responsibility to claim on your policy and ensure the beneficiaries receive the funds as instructed - whether that be upon your death or at a specified time.
Settlor: The person/s (policyholder/s) who sets up the trust and decides how the policy is managed. They will also continue to pay the monthly premium.
Trustees: The people who legally own the trust and manage the policy according to the settlor’s wishes. They can be a legal professional, family member or friend.
Beneficiaries: The person/s who will benefit from the trust on a date specified by the settlor. They can be family members, friends, or a charity.
When life insurance is written in trust, you’re essentially handing over ownership of your policy to someone else, which means it’s no longer considered part of your estate.
This has several valuable benefits, which we explain in more detail below…
Avoid or minimise inheritance tax
Putting your life insurance in trust is an important consideration if you have a large estate - which includes any money, possessions, and property you own at the time of your passing.
If your total estate is valued over £325,000, then your loved ones would be liable to pay inheritance tax on the amount above this threshold. The standard inheritance tax rate in the UK is 40%.
When life insurance isn’t written in trust, it forms part of your legal estate and is subject to inheritance tax, which can potentially reduce the sum paid out to your loved ones.
In some cases, if you were to secure a significant pay out amount, this could easily push the value of your estate above the tax-free threshold.
Many people put their life insurance in trust to avoid or minimise the amount of inheritance tax their loved ones will have to pay, or to help them pay a tax bill on the rest of the estate.
This ensures they’ll receive a larger inheritance.
In 2019/2020, UK estates worth between £300,00 and £500,000 paid on average £27,100 of IHT and 23,000 of all UK deaths (612,000) resulted in an IHT charge.
Avoid the probate process
Probate is a legal process that involves distributing your estate after you pass away. In England and Wales, it takes between 9 and 12 months on average to complete.
If your life insurance is written in trust, your policy will be dealt with separately from your estate, so your loved ones won’t have to wait for probate to receive the pay out.
Once the death certificate is produced, your trustees can make a claim and the funds could be available within a matter of weeks.
This is particularly beneficial if your loved ones will need some help covering immediate costs after you pass away, such as legal fees or funeral costs.
Better control over your policy
If your life insurance isn’t put in trust, the pay out funds could be forced to pay off outstanding debts, rather than going to your loved ones as intended.
Writing your life insurance in trust allows you to take more control and specify who you wish to receive the pay out, as well as when and how you want it distributed.
For example, if you have young children as your beneficiaries, writing your policy in trust allows you to instruct your trustees to keep control of the funds until your children reach a certain age, such as 18 or 21.
Co-habiting couples who have single life policies in place will also benefit from writing their policy in trust, as not doing so won’t give their partner any legal right to receive the pay out funds if a claim is made.
While there are lots of advantages to writing your life insurance in trust, there are some disadvantages to consider.
For more information on the potential disadvantages of writing your life insurance policy in trust, get in touch with Reassured.
One of our experts can run you through the pros and cons to help you decide if this is the right option for you and your family.
Putting your life insurance in trust doesn’t cost you anything. It’s a free service provided by most insurers.
As a broker, we’re trained to talk you through the trust application process. Our service is also offered completely free of charge.
However, trusts can sometimes be a complex process and if you choose to seek further financial advice, there may be a cost.
Please note, our trust service will never advise you on what to do. Although, we will provide you with enough information to help you make an informed decision.
To date, the trust team at Reassured has helped more than 12,000 customers put their life insurance in trust.
There are different types of trusts available, the one that’s right for you will depend on the type of life insurance you have chosen and how much flexibility you’d like.
Absolute trusts (sometimes known as 'Bare' or 'Fixed' trusts)
Survivor’s discretionary trusts
Some insurers also offer a ‘split trust’ for some policies. This gives you option to split your potential pay out between your policy and the trust, allowing you to retain some of the cover included with your policy.
For example, if you have life insurance with critical illness cover, or free terminal illness cover included as part of your policy, you can still make a claim if you become ill.
At Reassured, we can offer flexible and discretionary trusts with most of the policies we arrange. These trusts provide you with the most flexibility.
Make the most of our fee-free service to learn more about each option. Our experts can help you decide which may be the best option for you and your loved ones.
You can choose one person or multiple people to benefit from your life insurance policy if you were to pass away during the term.
Most commonly, partners and children are named as beneficiaries. However, you can also name:
If you’d like to leave an inheritance to your future children, or grandchildren, then the funds would need to be held in the trust until they reach 18 (when they can legally benefit).
You can also decide how the pay out is divided up between your beneficiaries. For example, you could leave 50% to your partner and 50% to your children.
With flexible and discretionary trusts, trustees have the power to add and remove beneficiaries, as well as decide how and when the pay out is distributed.
You’ll need to choose at least two trustees over the age of 18 to oversee the trust and manage your life insurance policy on behalf of your beneficiaries.
They can be:
With some types of trust, you can nominate yourself as a trustee, which allows you to keep some control over your policy and what happens to the trust while you’re living.
When choosing additional trustees, it’s important to think carefully about who will carry out this role. Some things to consider:
In some circumstances where a trustee is not following the terms of the trust document, it’s possible to request that they’re removed.
Yes. Having a trustee who is also a beneficiary of a trust is generally allowed and commonplace in family trusts.
However, where trustees are granted discretionary rights, it may be worth having at least one independent trustee who won't benefit from the trust.
A joint life insurance policy covers two people at the same time and only pays out once when the first person passes away.
It’s usually taken out by married couples or couples in a civil partnership who’d be exempt from inheritance tax if a claim was made.
As a result, it’s not common for joint life insurance to be written in trust for inheritance tax purposes. However, in some cases, it can be beneficial.
Joint life insurance can be a good option for couples who wish to save money on their life insurance premiums.
However, if one partner passes away during the policy term and a pay out is made, it leaves the surviving partner without any cover.
Taking out two separate policies written in trust will ensure that your children or other dependents will still receive an inheritance after you’re gone.
Unmarried couples don’t have the same legal rights as married couples, which can pose some issues when it comes to life insurance pay outs.
If your life insurance is not written in trust and you don’t have a Will, then the proceeds from your policy will go to your estate when you pass away.
Your estate will then be distributed to your closest living relatives - and your cohabiting partner won’t be legally entitled to receive anything.
Putting your life insurance in trust could be a sensible option if the purpose of your policy is to financially protect your partner (and other dependents) if you were no longer around.
In 2021, there were around 3.6 million cohabiting couples in the UK (a 144% rise since 1996) which has resulted in an increasing number of people taking legal action to claim their inheritance.
To help you easily weigh up the pros and cons of writing your life insurance policy in trust, we have compiled these in the table below:
|It’s free to set up||Not all policies can be written in trust|
|Avoid or minimise inheritance tax & maximise pay out||It can be difficult to amend the policy or take it out of trust once the trust is set up|
|Avoid probate & speed up pay out||You lose some control of your policy while you’re still alive (any changes must be signed off by the trustee)|
|Greater control over who gets the pay out and when||With some types of trusts, the trustees can add or remove beneficiaries at their discretion|
|Flexibility with some trusts to add or remove beneficiaries or trustees||Will cost money if you choose to hire a legal professional to act as a trustee|
|With some types of trusts, you can nominate yourself as a trustee (allowing you to make changes to the policy if you need to)|
If you decide that writing your life insurance in trust is the right option for you, then our team at Reassured are on hand to help you with this.
We have a team of experts who can provide a free trust writing service, once you have chosen the policy that suits your needs.
As the UK’s largest life insurance broker * , we can compare multiple quotes from some of the UK’s biggest insurers to help you find a fantastic deal.
Writing your life insurance in trust doesn’t have to be a time-consuming or complex process.
We can provide a simple, non-advisory run-through of the trust application form (for flexible or discretionary trusts), without any industry jargon.
Our dedicated customer service team can be reached between 09:00 - 17:30 on 0808 168 2025, or email email@example.com.
Simply get in touch for our fee-free, no-obligation comparison service.
Is life insurance part of an estate?
Yes, as mentioned, life insurance is usually considered part of your estate if it’s not written in trust.
This means the pay out could be subject to inheritance tax and probate if you were to pass away during the policy term.
By writing your life insurance in trust, you’ll have peace of mind that the money will go directly to your beneficiaries and not to your estate in the event of your death.
Do you pay inheritance tax on life insurance in trust?
No, one of the main reasons people choose to write their life insurance in trust is to avoid inheritance tax for their loved ones.
Writing your policy in trust will transfer ownership of the policy to your trustees, so it’s no longer considered part of your estate.
This will ensure that your loved ones will receive the full lump sum pay out after you’re gone, as per your wishes.
Can you put an existing life insurance policy in trust?
Yes, it’s possible to put an existing life insurance policy in trust.
If you’ve already taken out a policy and you’d like to place it in trust, then you’d need to get in touch with your insurer to find out if this is an option.
Provided the answer is yes (which is highly likely), you can then print the relevant trust form either directly from the insurer's website or from us, (see below).
If you’re aware of the trust options but you’re not ready to set one up with your new policy, you can choose to do this at a later date.
In some cases, it may be necessary to hire a professional advisor or solicitor to help with writing your existing life insurance in trust.
Can you cancel a life insurance policy in trust?
If you need to cancel your life insurance policy, this will also void the trust you’ve set up.
You’ll need permission from the trustees before you can cancel your life insurance in trust.
If you cancel within the 30 days cooling off period after taking out the policy, you’ll receive a full refund of any premiums paid.
If you cancel after 30 days, your premiums won’t be refundable.
Below we have listed the trust documents and guides from some of the best life insurance providers in the UK.
At Reassured, we can’t provide any advice on whether the trust you’ve chosen is the right option for you, but our experts can help you fill in the necessary forms (for the trusts we have available).
If you require advice or any further help with setting up your trust, you may wish to speak to a legal and/or financial advisor.
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Vitality Life Customer Services
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