Putting your life insurance into trust

Basic facts of trusts

  • A trust is a legal arrangement allowing a person to transfer money or assets (such as property, life insurance, investments or other possessions) out of their estate and ‘gift’ them to someone else (the beneficiary).
  • We’ll assume the asset being placed in trust is a life insurance policy.
  • This is done by creating a 'trust deed', which details who is involved in the trust (the parties to the trust) and the terms of the trust (the trust provisions).
  • Normally, placing a policy in trust is an 'irrevocable act', which means once the policy is in trust this decision can't be changed later on, so you need to really think if putting your policy in trust is right for you. You can put a life insurance policy into trust as soon as it starts, or at a later date.

Who's needed to set up a trust?

  • Settlor (or 'Donor' on an Absolute Trust) - the person(s) who puts assets into a trust (transferring legal ownership to the trustees) and appoints trustees to look after the trust.
  • Trustee - the person(s) who looks after the contents of the trust on behalf of the beneficiary(ies) - normally trustees are the settlor themselves, and at least one other person, someone else the settlor trusts and who is likely to outlive them.
  • Beneficiary - the person(s) who can benefit from the trust.

  • Advantages

    1. Proceeds are paid to the right person/people.
    2. Proceeds are paid out quickly, so long as there's at least one surviving trustee - we won't need to wait for probate.
    3. Helps reduce Inheritance Tax liability - as proceeds fall outside your estate on death*.

    *We’ve based this information on our understanding of current UK law and HM Revenue and Customs practice at June 2019. Bear in mind, any changes to these rules, or to your personal circumstances could affect what you get in the future.

  • Disadvantages

    1. Once your policy has been put into trust, you can't change your mind and take the policy out of trust later on.
    2. You're giving up ownership and sole control of your policy, although you would be one of the trustees, so during your lifetime you would have some control.

Being a trustee - your guide

The role of trustee is very important and to help you understand your duties and responsibilities, you and your chosen trustees should each read this guide before agreeing to be a trustee.

Need help?

Looking for advice?

If you are unsure if putting your policy into trust is right for you, or you’re not sure which trust to choose, you should seek professional help from a solicitor or your financial adviser – you may have to pay for the advice you receive.

Got a question?

Take a look at some of the most frequently asked questions about putting a life insurance policy into trust.

If you have a question that can’t be answered in our FAQs call us on 0800 096 6233