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Life insurance in trust, and why it matters
Writing life insurance in trust means the policy is held by trustees for the people you choose.
MoneyHelper says the value of the policy is then not considered part of your estate and can be paid outside probate and Inheritance Tax (MoneyHelper ↗).
This guide explains how it works, the trust types and the catches.
Every claim here is our summary of a named external source, linked beside it. Sources change: check the wording at the link before you rely on it.
What writing life insurance in trust means
A trust is a legal arrangement in which trustees manage assets for the benefit of your chosen beneficiaries (Aviva ↗).
Your life insurance in trust becomes one of those assets: once the trust is in place, the trustees become the legal owners of the policy, and you remain responsible for paying the premiums (Legal & General ↗).
When a claim is made, the insurer pays the trustees, who pass the money on or look after it until the beneficiaries can manage it themselves, for example young children (Aviva ↗).
Settlor
You set up the trust
You choose the trustees and the beneficiaries and place the policy in trust. You keep paying the premiums.
Trustees
They own the policy
They keep the trust deed safe and make the claim when the time comes.
Beneficiaries
They receive the money
Straight away, or held by the trustees until they are old enough.
Roles summarised from Aviva (Aviva ↗) and Legal & General (Legal & General ↗).
Why people use a trust, and the catches
Speed is the everyday benefit.
Aviva says that with the policy in trust your loved ones don't have to wait for probate for the policy to pay out, and in most cases the trustees just need the death certificate (Aviva ↗).
Legal & General notes that an unmarried partner has no legal claim on a policy that is not in trust, unless a will includes them (Legal & General ↗).
If there is no trust and no named beneficiary, MoneyHelper says the insurer pays the proceeds into your estate, which could take a long time and could mean Inheritance Tax (MoneyHelper ↗).
How a trust changes the Inheritance Tax position
Without a trust, HMRC says the proceeds form part of the estate of the person insured (HMRC IHTM20012 ↗); in trust, Aviva says the policy is owned by the trustees and does not count towards the threshold in the table (Aviva ↗).
It is not always tax-free.
Legal & General says certain trust charges can arise if money stays in trust for a long time (Legal & General ↗), and GOV.UK explains the charges on relevant property trusts (GOV.UK ↗).
The rules only. We do not work out anyone's Inheritance Tax: reliefs, gifts and the home allowance change the answer, so check GOV.UK or a solicitor or adviser for your own estate.
Bare trust vs discretionary trust
The main difference is who decides.
In a bare trust the beneficiary has the right to all of the capital and income (GOV.UK ↗); insurers call their version an absolute trust, with beneficiaries fixed at the start (Legal & General ↗).
In a discretionary trust the trustees decide who gets what (GOV.UK ↗).
Insurers also offer flexible and survivor's trusts.
Which fits is a question for a legal or financial adviser.
Business protection policies in trust
Business cover follows its own rules.
The table shows which policies sit in trust and who each one pays, from the insurers' own guides.
Run a business? There is a business version
A director's personal cover and the company's cover sit side by side.
Your own policy can go in a family trust; the company's policies follow the rules above.
This site is mainly about cover a company buys, and the cards show who each policy pays.
- Pays the business
Key person life insurance
Cover the company owns on someone it relies on, so the payout goes to the business (Legal & General ↗). It needs no trust (Royal London ↗).
Read the guide → - Pays the family
Relevant life insurance
Life cover the company pays for on a director or employee, paid to their family through a trust (Royal London ↗).
Read the guide → - The full set
Business protection insurance
Key person, shareholder protection, loan cover and the director policies, side by side.
Read the guide →
Check it for yourself
Every claim on this page is our summary of one of the documents listed here.
We last checked them against the live sources on 28 September 2026.
The documents are the authority, not this page.
Insurers and HMRC update them, so validate any figure or condition at its link before you rely on it.
- MoneyHelper: What is life insurance? ↗Types of cover, joint or single, cost factors, trusts, buying and cancelling
- MoneyHelper: Life insurance for over 50s ↗How over 50s plans work, pros and cons, what to check, complaints
- MoneyHelper: A guide to Inheritance Tax ↗Thresholds, trusts and life insurance in Inheritance Tax planning
- GOV.UK: Inheritance Tax ↗The £325,000 threshold, the 40% rate and the main exemptions
- GOV.UK: Trusts and Inheritance Tax ↗Relevant property, exit charges and 10 year anniversary charges
- GOV.UK: Types of trust ↗Bare, interest in possession and discretionary trusts
- HMRC Inheritance Tax Manual, IHTM20012 ↗How life policies and their premiums are treated for Inheritance Tax
- Legal & General: Putting life insurance in trust ↗Trust types, pros and cons, and what happens after set-up
- Aviva: Putting life insurance in trust ↗Advantages, disadvantages and how to set one up
- Aviva Trust for life insurance ↗Settlor, trustees and beneficiaries, and Aviva’s two trust forms
- Royal London: relevant life is owned by the trustees ↗Set up under trust from the start, not a company asset
- Royal London shareholder protection ↗Own-life plans held in business trust for co-shareholders
- Legal & General key person insurance ↗Key person cover is owned by, and pays, the business
- Royal London relevant life FAQs ↗Relevant life: the employer pays, the family is paid through a trust
- Royal London business protection guide ↗Why key person cover needs no trust
Life insurance in trust, answered
Not financial advice. This page is general information. Before buying insurance, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗). For free guidance, see MoneyHelper.