FCA Regulated • Ref 478810 • Free to set up

Life Insurance in Trust

Life insurance in trust —the step most Londoners skip

Most London homeowners arrange life insurance to protect their family. Far fewer write it in trust — and that single omission can cost their family 6–12 months of waiting and tens of thousands in inheritance tax. It is free. It takes 30 minutes. We do it for every client.

Free to set upBypasses probateReduces IHT riskPays in days not months

Call 0844 884 9748 — Mon–Sat 9am–7pm

Step 1 of 3

What type of protection do you need?

Select all that apply — we will find the right solution for you.

The probate problem

When someone dies, their estate cannot be distributed until the court grants probate. If your life insurance is not in trust, the payout sits locked in your estate throughout this process.

Step 1

Death

Family notifies insurer and begins paperwork

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Step 2

Probate application

Solicitor submits application to HMCTS

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Step 3

Grant of probate

Typically 6–12 months. Complex estates longer.

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Step 4

Payout released

Family finally receives money — often 12+ months later

With a trust: the insurer pays trustees directly within days of a valid claim — no probate required.

The inheritance tax problem

Inheritance tax (IHT) is charged at 40% on the value of an estate above the nil rate band. For 2026, the nil rate band is £325,000 — rising to £500,000 for those who pass their home to direct descendants (the residence nil rate band). With London property prices averaging well over £500,000, many estates are already close to or above these thresholds before a life insurance payout is even considered.

The trap: when a life insurance payout increases your IHT bill

Family home value£600,000

Life insurance payout (not in trust)£400,000

Other assets£50,000

Total estate£1,050,000

Nil rate band (single person, no RNRB)£325,000

Taxable amount£725,000

Inheritance tax at 40%£290,000

The £400,000 life insurance payout added approximately £160,000 to the IHT bill. Written in trust, that payout does not form part of the estate — and the tax bill falls to approximately £130,000.

Same scenario — policy written in trust

The £400,000 payout goes directly to trustees and is not part of the estate. Taxable estate: £650,000 − £325,000 = £325,000 × 40% = £130,000 IHT. Family receives the full £400,000 from the trust within weeks. Total saving: approximately £160,000 in IHT, plus 6–12 months faster access to funds.

How we set up your life insurance trust

Four simple steps — 30 minutes of your time, completely free.

Choose the right trust type

We explain the difference between an absolute trust and a discretionary trust and recommend the right one for your family circumstances, age of your children, and estate planning goals.

Name your trustees

You choose two trustees — typically your spouse or partner plus a trusted friend or family member. Trustees hold the policy and distribute the proceeds. We explain the responsibilities involved.

Name your beneficiaries

You name the people who will benefit from the trust — your spouse, children, or other dependants. In a discretionary trust, you name a class of potential beneficiaries and trustees decide the distribution.

Sign the trust deed

The insurer provides a trust deed (a legal document setting out the terms of the trust). You sign it, your trustees sign it, and we submit it with your policy application. From that point, your policy is in trust.

Absolute trust vs discretionary trust

For most life insurance policies, you will choose between these two trust types.

	Absolute Trust	Discretionary Trust
Beneficiaries	Fixed — cannot be changed	Flexible — class of potential beneficiaries
Can trustees change distribution?	No	Yes
Can be amended after setup?	No — irrevocable	Some terms can be adjusted
Best for	Stable family situation, fixed beneficiaries	Blended families, young children, changing circumstances
IHT treatment	Out of estate immediately	Out of estate immediately
Complexity	Simple	Slightly more complex
Insurer forms	Standard — most insurers provide	Standard — most insurers provide

What happens to the money?

When you die and a valid claim is submitted, the insurer pays the sum assured directly to your trustees — not to your estate. The trustees then hold the money and distribute it to the beneficiaries in accordance with the trust deed.

In an absolute trust, the distribution is straightforward — the named beneficiaries receive their specified share. In a discretionary trust, the trustees decide how much each beneficiary receives and when. They can make phased distributions, hold funds for children until they are older, or respond to beneficiaries' changing needs.

Trustees have a legal duty to act in the best interests of the beneficiaries. They can seek professional advice on how to invest or distribute trust funds if needed.

Worked examples

Real scenarios showing the difference a trust makes.

Young family, first home

James, 32, has a £300,000 repayment mortgage and a £300,000 decreasing term policy. He has a wife and one child.

Without trust

Policy not in trust. Wife and child wait 9 months for probate. During that time they must find another way to cover the mortgage. Estate value just above IHT threshold — £30,000 tax bill.

With trust

Policy in trust. Wife receives £300,000 within 3 weeks. Mortgage cleared immediately. No IHT on the payout. Family financially secure.

London homeowner, mid-career

Sarah, 45, owns a £700,000 property (with £250,000 mortgage) and has a £500,000 level term policy.

Without trust

Policy not in trust. Estate value: property equity + policy = £950,000. Above £500k RNRB by £450,000. IHT: £180,000. Family waits 11 months for probate.

With trust

Policy in trust. £500,000 goes directly to trustees — not the estate. Estate = £450,000 — below RNRB. No IHT. Full £500,000 available to family in weeks.

Blended family, discretionary trust

David, 50, is remarried with children from his first marriage and his current marriage. He has a £400,000 level term policy.

Without trust

Policy not in trust. Payout goes to estate, distributed under his will. Risk of delays and family disputes about entitlement.

With trust

Discretionary trust with wife and close friend as trustees. Trustees can distribute according to David's wishes, considering all children's needs. Family conflict minimised.

Life insurance in trust FAQs

Is it free to write my life insurance in trust?

Yes — completely free. Writing your life insurance in trust involves signing a trust deed provided by the insurer. There is no fee from us, no fee from the insurer, and the process takes around 30 minutes at the point of application. There is no reason not to do it.

What happens to the trust if I outlive the policy term?

If the policy term expires without a claim, the trust simply becomes dormant — there are no assets to hold. The trust does not create any ongoing obligation or cost if the policy does not pay out. It is simply a legal mechanism that activates if a claim is made.

Can I name more than one beneficiary in a life insurance trust?

Yes. You can name multiple beneficiaries. In an absolute trust, you specify each beneficiary and their share. In a discretionary trust, you name a class of beneficiaries and the trustees decide how to distribute between them. Naming multiple beneficiaries is common — for example, a spouse as primary beneficiary and children as secondary.

What if my beneficiaries change (e.g. divorce or new children)?

This is an important reason to review your trust regularly. An absolute trust cannot be changed — so if your circumstances change significantly, you may need to consider whether your existing trust still reflects your wishes. A discretionary trust gives trustees more flexibility to adjust distributions. We recommend reviewing your trust whenever your family circumstances change.

Does a trust affect the monthly premium for my life insurance?

No — writing your policy in trust does not affect the premium in any way. The cost of your life insurance is exactly the same whether it is in trust or not. The trust is a legal wrapper around the policy, not a product feature that affects pricing.

Can I set up a trust for an existing life insurance policy?

Yes, though the process may be slightly different. Many insurers allow existing policies to be placed in trust by completing a trust form — contact your insurer or speak to us. If you have an existing policy that is not in trust, we strongly recommend setting one up as soon as possible.

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Get a Free Quote →

Speak to Roger Cooper (CeMAP qualified) for independent, whole-of-market advice.

Get a free life insurance quote — with trust setup included

We arrange the trust as part of every life insurance application. No extra charge. No extra hassle. Just the peace of mind that your family will receive the money they need, when they need it.

Get a Free Quote Call 0844 884 9748

Trust advice for property and estate planning should be sought from a qualified solicitor or estate planning specialist. Mortgage International can advise on writing life insurance policies in trust. Mortgage International is an appointed representative of The Right Mortgage Limited, which is authorised and regulated by the Financial Conduct Authority (FCA Ref: 478810). Trusts are not regulated by the Financial Conduct Authority.