Life insurance is designed to offer financial support to your loved ones if the worst happens. But did you know that putting your policy in trust can affect how quickly, and to whom, the money is paid out? In this blog, we’ll explain what that means, how it works, and why it could be a valuable move.
What is a trust?
A trust is a legal arrangement where you pass ownership of an asset — in this case, your life insurance policy — to other people, known as trustees.
The trustees look after your policy and, if you pass away, make sure the money goes to the people you’ve chosen — your beneficiaries — at the right time and in line with your wishes.
You stay in control of who gets the money and who manages it. It’s a way to make things simpler and more secure for your loved ones.
Why put life insurance in trust?
Here are some key reasons why putting your life insurance policy in trust could make sense:
✅ Immediate payout when it’s needed most
If your policy is written in trust, your trustees can make a claim directly, and the money can be paid out much faster.
If it’s not in trust, the payout may be delayed while your estate goes through probate — a legal process that can take months at a time when money might be needed urgently.
✅ Helps reduce potential inheritance tax
In most cases, the payout from a life insurance policy becomes part of your estate when you die. That means it could be subject to Inheritance Tax.
But if your policy is written in trust, it usually sits outside of your estate — which means the money can be paid to your beneficiaries tax-free (though tax treatment depends on individual circumstances and may change in future).
✅ Makes sure the money goes to the right people
According to HMRC, nearly 7,500 families paid inheritance tax on life insurance policies in 2022/23. But many would have escaped a bill if their policy was written into trust . That means their estate could be distributed according to the law, not their wishes.
By placing your life policy in trust, and naming your beneficiaries, you help ensure the money goes to the people you want it to — not whoever the law decides.
✅ It’s free and gives peace of mind
Putting a life insurance policy in trust is completely free — and it can provide real peace of mind.
You’ll know your policy is set up to pay out quickly, tax-efficiently, and to the right people.
How do I set up a trust?
It’s simpler than you might think. You’ll need to provide the names and contact details of up to three trustees — these are people you trust to manage the money if something happens to you. They’re usually close friends or family members who are around your age and in a similar stage of life.
Once you’ve chosen your trustees, your adviser can help you complete the trust form as part of your life insurance application. It doesn’t cost anything to do, and we’ll guide you through every step.
What do trustees do?
Your trustees have an important job. If you pass away during the policy term, they’ll:
- Make a claim with the life insurance provider
- Follow your instructions as set out in the trust
- Make sure the money is paid to your chosen beneficiaries
- Work with your financial adviser (that’s us!) to guide them through the claims process
It’s a responsibility — which is why it’s important to choose people you trust.
Is putting your policy in trust right for everyone?
Not always — it depends on your personal and financial circumstances. There may be situations where putting your policy in trust isn’t the best option, such as if you want to retain full access to the policy proceeds or need flexibility around how the money is used. That’s why it’s important to speak with a qualified financial adviser before making any decisions.
Final thoughts
Putting your life insurance in trust is one of those small steps that can make a big difference. It helps your loved ones access the money faster, avoids potential tax, and gives you control over who gets what.
It’s free to do, easy to set up, and could give, you and your family, real peace of mind.
💬 Want to set up a policy in trust or check if yours already is?
👉 Speak to a protection adviser
Here at Meet Margo, we’re all about sharing helpful info and insights on all things mortgages and finance. But just a heads up, our blog isn’t regulated by the Financial Conduct Authority and is for general information only and – t’s not intended as financial advice. For the nitty-gritty financial stuff, it’s always best to speak to an expert.
