Life Insurance in Trust: Why It Matters and How to Set It Up in 2026

The mistake most London homeowners make

Every year, thousands of families across the UK are left waiting for life insurance money that should reach them quickly. The cause is almost always the same: the policy was not written in trust. Instead of paying directly to the family, the payout goes into the estate — where it sits, locked, until the courts grant probate.

Probate is the legal process by which a deceased person's estate is administered. It is necessary before assets can be distributed. And it takes time — typically 6 to 12 months for a standard estate, longer for complex ones. During that period, your family may be struggling to cover the mortgage, household bills, and daily expenses.

Writing your life insurance in trust is the solution to this problem. It is free. It is straightforward. And we do it for every client we work with, as part of every life insurance application.

What is a trust — and why does it matter for life insurance?

A trust is a legal arrangement where assets are held by trustees (people you choose and trust) for the benefit of named beneficiaries (your family). The key point is that assets in a trust are not part of your estate — they pass outside the probate process.

When you write a life insurance policy in trust, you are telling the insurer: "When I die, pay the money to my trustees directly — not into my estate." The trustees receive the money and distribute it to your beneficiaries according to the trust deed. No probate. No delays. No inheritance tax on the payout.

The probate timeline — and what it costs your family

Here is what happens when a life insurance policy is not in trust. After death, the family must apply for a grant of probate through the Probate Registry. The application requires a full inventory of the estate, copies of the death certificate, completion of IHT forms, and payment of any inheritance tax due (which must often be paid before probate is granted — even though the assets to pay it are locked in the estate).

Once submitted, the application sits in a queue. In 2026, many probate applications take 6 to 12 months to process. In complex estates — multiple properties, business interests, overseas assets — it can take considerably longer.

During all of this, your family cannot access the life insurance payout. They cannot clear the mortgage. If they have insufficient savings, they may struggle with ongoing payments.

• Week 1–4: Death certificates obtained, solicitor instructed
• Month 1–3: Estate inventoried, IHT forms completed and submitted
• Month 3–9: Probate application submitted and queued
• Month 6–12+: Grant of probate received — life insurance finally released

The inheritance tax problem — why London homeowners are most at risk

Inheritance tax is charged at 40% on the value of an estate above the nil rate band. For 2026, the nil rate band is £325,000 for a single person, rising to £500,000 if you leave the family home to direct descendants (using the residence nil rate band).

London property prices are a problem here. The average London property is worth over £500,000. If you add a life insurance payout — say £400,000 — to an estate that already includes a property and other assets, you could easily push the total estate well above the IHT threshold.

A typical London example: property equity of £600,000, life insurance payout of £400,000, other assets of £50,000 = £1,050,000 estate. After the nil rate band, IHT is due on £725,000 — a tax bill of £290,000. If the life insurance had been in trust, it would not be part of the estate at all. The taxable estate would be £650,000 — IHT on £325,000 — a bill of £130,000. The trust saves the family £160,000.

Absolute trust vs discretionary trust: which is right for you?

There are two main trust types used for life insurance: absolute trusts (also called bare trusts) and discretionary trusts.

An absolute trust names fixed beneficiaries — for example, your spouse receives 100% of the payout. Once set up, it cannot be changed. It is simple and certain, and suits people whose family circumstances are stable and who know exactly who should receive the money.

A discretionary trust names a class of potential beneficiaries — for example, your spouse and children — and gives trustees the power to decide how to distribute the money. This is more flexible: if your spouse dies before you, or if your children's needs change, the trustees can respond. Discretionary trusts are particularly appropriate for blended families, young children, and those whose circumstances may change.

We will always discuss which trust type is right for your situation before we set it up. For most clients with a young family, we recommend a discretionary trust. For those with very fixed circumstances and adult beneficiaries, an absolute trust is often simpler.

Choosing your trustees — practical advice

Most people appoint two trustees: a spouse or partner, and a trusted friend or family member (a sibling, parent, or close friend). The trustees do not need any specialist knowledge — they simply need to be trustworthy, likely to outlive you, and willing to act.

You cannot be the only trustee of your own life insurance trust — that would defeat the purpose, as you could then change the terms at will. Most people choose two or three trustees.

It is worth considering who would be a good trustee if your primary choice were also to die — for example, if you and your spouse die together in an accident. Having a third trustee or a backup plan is prudent.

We talk through trustee selection with every client and can advise on the practical implications of different choices.

How we set it up — 30 minutes, completely free

Writing a life insurance policy in trust is one of the simplest things we do — and one of the most impactful. At the point of application, we go through the trust options with you, recommend the right trust type, confirm your chosen trustees and beneficiaries, and complete the trust deed.

The insurer provides the trust deed as a standard document. We complete it alongside your policy application. You sign, your trustees sign, and it is done. There is no fee from us, no fee from the insurer, and no ongoing cost.

If you already have a life insurance policy that is not in trust, contact us. Many insurers allow existing policies to be placed in trust by completing a retrospective trust form — and we can help you do this.