Should you write your life insurance policy in trust?
A life policy written in trust pays out to the trustees rather than to your estate, which keeps the proceeds outside the Inheritance Tax calculation and outside probate. Providers offer the trust deeds without charge, the form takes minutes, and a policy not in trust can lose 40% of its value and several months of delay for no reason at all.
- Outside the estate: the payout goes to the trustees, not to your estate, so it is not taxed as part of it.
- Outside probate: beneficiaries can be paid within weeks rather than after a grant is obtained.
- The cost: usually nothing; providers supply standard trust deeds.
- The catch: it is generally irrevocable, so the beneficiaries need to be right.
01 What the trust does
Without a trust, a life policy pays into your estate. It is then part of the estate for Inheritance Tax, so a £300,000 payout on an estate already above the nil-rate bands is charged at 40% — £120,000 of a sum intended to support a family.
It also has to wait for probate. The executors cannot distribute until a grant is obtained, which routinely takes months, and the payout is exactly the money a family most needs quickly.
In trust, the policy pays to the trustees on death and they pay the beneficiaries. The proceeds never enter the estate, so neither problem arises.
Shows: what a life policy payout loses to Inheritance Tax when it falls into the estate. Ignores: the nil-rate bands available, probate delay, and the type of trust used.
On the defaults above, the worked example shows £120,000. In trust, none of that arises — and the beneficiaries are paid in weeks rather than after probate.
Source: Inheritance Tax
02 How it is done
Providers supply standard trust forms and there is normally no charge. You name trustees — commonly your spouse and one other adult — and the beneficiaries, and sign it. New policies can be set up in trust from the outset; existing ones can usually be placed in trust afterwards.
For a policy with no surrender value, placing it in trust generally has no Inheritance Tax consequence of its own. Premiums are usually covered by the normal expenditure out of income exemption or the annual exemption, so the gift element is not a practical problem.
The paperwork does have to be findable. A trust the family does not know about is a trust the trustees cannot act on, so the deed belongs with the will rather than in a drawer.
03 The one thing to get right
Trusts of this kind are generally irrevocable, so the beneficiaries have to be right at the point of signing. A discretionary version, where the trustees choose among a class of beneficiaries guided by a letter of wishes, handles changing circumstances better than a fixed nomination.
That matters because a policy taken out in one relationship and never revisited pays to the person named, whatever has happened since. It is the same failure as an out-of-date expression of wish on a pension, with the same consequence.
Review the arrangement after any significant change — marriage, divorce, a new child — and confirm with the provider that the trust is recorded rather than assuming the form arrived.
Source: Trusts and taxes
This is the best return on twenty minutes available in personal finance. A £300,000 policy not in trust can lose £120,000 to Inheritance Tax and take four months to reach the family through probate; in trust it loses nothing and pays in weeks. The provider supplies the form and does not charge for it. The only thing to think about is who the beneficiaries are, because these trusts are generally irrevocable — which is an argument for the discretionary version with a letter of wishes rather than a fixed nomination you may regret.
FAQ
Does writing a policy in trust cost anything?
Usually nothing. Providers supply standard trust deeds free of charge, and both new and existing policies can normally be placed in trust. The cost is the time to complete the form.
Why does it avoid probate?
Because the proceeds are paid to the trustees rather than into your estate, so no grant of probate is needed before the beneficiaries can be paid. That routinely saves months at the point a family most needs the money.
Can I change the beneficiaries later?
Generally not with a fixed trust, which is why a discretionary version with a letter of wishes is usually better. The trustees then choose among a class of beneficiaries, which copes with marriage, divorce and new children.
Sources
Regulator references
- Inheritance Tax · GOV.UK · 2025The nil-rate band, the 40% rate and what forms part of the estate.Last verified: 2026-09-07
- Inheritance Tax: gifts and exemptions · GOV.UK · 2025The annual exemption, small gifts and normal expenditure out of income rules.Last verified: 2026-09-07
- Trusts and taxes · GOV.UK · 2025The charges a trust attracts, which decide whether it is worth using.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.