Writing life insurance in trust

Writing life insurance in trust means the policy, and its payout, belongs to people you choose (the trustees), who hold it for the people you want to benefit (the beneficiaries). Because the money doesn't belong to your estate, it can usually be paid to the trustees without waiting for probate, or confirmation in Scotland. MoneyHelper explains that property held in a trust normally isn't counted in your estate when Inheritance Tax is worked out.

Without a trust or a nomination, MoneyHelper says the insurer pays the proceeds into your estate. That can take a long time to reach the people you intended, and could mean it is subject to Inheritance Tax.

How a life insurance trust works

MoneyHelper describes a trust as a legal arrangement where you give an asset to someone else to look after for the benefit of a third person. With a life policy:

• You (the settlor, or truster in Scotland) take out the policy and usually keep paying the premiums.
• The trustees legally own the policy. They make the claim when you die and deal with the money.
• The beneficiaries are the people the money is for, such as a partner or children.

MoneyHelper suggests having at least two trustees, probably no more than three or four, chosen from people you trust who are willing to take the job on. A company such as a bank or a firm of solicitors can act too, though it will charge.

MoneyHelper says many life insurers offer a trust option when you buy cover. Trusts are most often discussed for whole of life insurance used for Inheritance Tax, but they work the same way for term life insurance and family income benefit.

Why it can make a payout faster

England and Wales: probate

GOV.UK says executors must value the estate and deal with any Inheritance Tax before applying for probate, and that probate usually takes up to 12 weeks after the application is submitted, longer if more information is needed. GOV.UK also says valuing an estate can take several months. A policy that pays the estate is caught up in all of that.

Scotland: confirmation

In Scotland, an executor applies to the sheriff court for confirmation, the Scottish equivalent of probate. The Scottish Courts and Tribunals Service says it is often a bank, building society or insurance company that asks for confirmation before releasing money. The executor must list everything the person owned in an inventory first. For estates over £36,000, the court service can't help prepare the paperwork and recommends legal advice.

A policy held in trust sidesteps this. Under the Scottish 1880 Act described below, the trustee's receipt is enough to discharge the insurer.

The Inheritance Tax timing problem

GOV.UK says Inheritance Tax is due by the end of the sixth month after death, and that a payment usually has to be made before probate or confirmation is granted. A trust payout can reach the family in that window, when the estate's own money is still locked.

Inheritance Tax and life insurance trusts

HMRC's manual says that if the person who died owned a policy on their own life, the proceeds form part of their estate and are taxable on death. GOV.UK sets the standard rate at 40% on the part of an estate above the £325,000 threshold. Holding the policy in trust is how people keep the payout out of that calculation.

Points to know:

• Premiums are gifts. HMRC treats paying premiums on a policy owned by others as a gift. Its manual gives regular monthly premiums into a life policy written in trust as an example of normal expenditure out of income, which is exempt when the conditions are met.
• Moving an existing policy into trust is a gift of the policy's value on the day it is transferred, according to HMRC. What that value is depends on the policy and your circumstances on the day.
• Some trusts face periodic charges. HMRC's examples show ten-yearly charges may arise on some policy trusts, depending on the type of trust.
• Registration. GOV.UK says trusts holding life policies that pay out only on death, illness or disability don't need to register with HMRC's Trust Registration Service, unless the trust is liable to UK tax.

Common types of trust

MoneyHelper describes these, among others:

How Scotland is different

The 1880 Act

Section 2 of the Married Women's Policies of Assurance (Scotland) Act 1880 says that a policy taken out on your own life and expressed on its face to be for your spouse or children (or both) is treated as a trust for them. It doesn't form part of your estate and is protected from your creditors. The Civil Partnership Act 2004 applied this to civil partners. Creditors can claim back the premiums if the policy was set up to defraud them, or if the person whose life is insured is made bankrupt within two years of the policy starting.

The Act doesn't cover cohabiting partners, stepchildren who haven't been adopted, or grandchildren. A policy for them needs a different form of trust.

The Trusts and Succession (Scotland) Act 2024

This Act, which received Royal Assent on 30 January 2024, will, once fully in force, repeal the Trusts (Scotland) Act 1921, the main existing statute, and replace it with modern rules on appointing and removing trustees, how trustees make decisions, investment, giving beneficiaries information, and advancing capital to a beneficiary.

It is being brought in by stages. As at 2 October 2026, the only commencement regulations published on legislation.gov.uk are those that took effect on 26 June 2024, covering removal of certain executors and trustees, such as a professional trustee who is no longer regulated. Most of Part 1, including the new trustee powers, is still shown there as not yet in force. Some succession changes in Part 2 took effect on 30 April 2024.

In practice, this means a trust set up today may be governed partly by old rules and partly by new ones over its lifetime. A Scottish solicitor can check how an existing policy trust and its trustee powers will work under both.

Setting up or checking a trust

Many people use the insurer's own trust form, which is designed for that insurer's policies. MoneyHelper's guidance is that trust law is complicated, that a mistake can trigger an immediate tax charge, and that it's important to talk to a solicitor or independent financial adviser first.

A solicitor can:

• draft or check a trust deed and make sure it fits your will
• advise on the right type of trust for your family, including blended families and cohabiting couples
• explain how Scottish law, including the 2024 Act, affects your trust
• check older trusts, where trustees may have died or lost touch

The Law Society of Scotland and the Law Society for England and Wales both have searchable directories of solicitors.

What to check in your policy

• Trust status: whether the policy schedule says it is written in trust
• Trust deed: whether you have a signed copy, and whether the insurer holds one
• Trust type: bare, discretionary, or another kind
• Trustees: who they are, whether they are alive, able and willing to act, and whether at least one will be available after your death
• Beneficiaries: whether they still reflect your family, especially after marriage, separation, new children or a death
• Scottish 1880 Act wording: if the policy says it is for your spouse or children, whether that still matches who you want to benefit
• Nomination forms: whether any beneficiary nomination conflicts with the trust
• Who pays premiums: and whether your payments fit the gift exemptions
• Your will: whether it refers to the policy correctly

When to talk to a solicitor or adviser

A regulated financial adviser can recommend a policy and whether it should be held in trust. A solicitor can set up or check the trust itself, and in Scotland can explain how the 1880 Act and the 2024 reforms apply to you. Both are worth it if your estate may face Inheritance Tax, your family is complicated, or the trust was set up years ago.

This guide is general information about how insurance works in the UK. It isn't advice and doesn't take your circumstances into account. Policies differ: your own policy documents are what count.