Essential Information
Life Insurance and Trusts: A Quick Guide
Why Put Your Policy into a Trust?
- Avoid Probate Delays
- Cut Inheritance Tax
- Choose Who Benefits
- Protect Your Beneficiaries
- Flexible Arrangements
Trusts are not regulated by the Financial Conduct Authority. The following guide is not intended to replace advice. If you have any questions or need further information, please don't hesitate to call us on 0800 612 8005.
Top 5 Reasons to Put Your Policy in Trust
Putting your life insurance policy in trust is an easy way to protect your loved ones and ensure they receive the payout promptly. It can also help reduce inheritance tax and give you greater control — here are the top five benefits of setting up a trust
Your policy pay out goes directly to your loved ones, so they don’t have to wait through the often lengthy probate process.
Putting your life insurance in trust can help keep the policy payout outside your estate for IHT purposes, which may reduce the inheritance tax bill. However, some types of trust may also incur periodic or exit tax charges under trust taxation rules — always check with a tax adviser before setting up a trust.
You decide exactly who gets the money, ensuring it goes to the people or causes you care about most.
Safeguard funds for children, vulnerable family members, or anyone who might not manage a lump sum responsibly.
Depending on your policy provider and the type of trust you set up, you may have flexibility to make updates and keep your arrangements current as your circumstances change. If you are unsure, please don't hesitate to contact us.
Explanation of Technical Terms
The people or organisations you choose to receive the payout from your life insurance policy or trust fund. You can nominate as many as you like.
Money or assets you give to someone, often with the intention that it will benefit them in the future.
A non-legally binding document that guides trustees on how you (the settlor) would like your policy payout or trust assets to be used. It provides helpful guidance for trustees on how best to manage and distribute funds to the beneficiaries.
The legal process of administering the estate of someone who has passed away and distributing their assets under a Will. This process typically takes weeks to several months, but it can sometimes take even longer for complex cases. By putting your policy into trust, payment of the policy sum can usually be paid out directly to your beneficiaries without going through probate. Without a trust, life insurance payouts may be delayed by this process.
The person (or people) who creates a trust and transfers their policy or other assets into it. The settlor is typically the policyholder and is responsible for the arrangement; they may act as one of the trustees, although they don't have to. Whether the settlor is also trustee can affect how the trust is administered and may have tax implications, so please take advice if you are unsure.
Individuals or organisations appointed to manage a trust and ensure the policy payout or assets are distributed according to the settlor’s instructions. Trustees take legal ownership of the trust fund, look after it, and arrange payments to the beneficiaries in the event of a claim. They must act in the best interests of the beneficiaries and follow what is allowed in the trust deed. Anyone over 18, who is of sound mind, can be a trustee. A letter of wishes can guide them on how you would like the trust fund to be used.
Someone who observes you signing a legal document, such as a Will or deed, to confirm it was signed correctly and voluntarily. A witness should be independent and not a party to the deed. Usually they are not be a spouse or partner of anyone named in the trust, but rules do differ by document type, so please follow the instructions carefully on your trust forms and seek our assistance if you are unsure.