What does it mean to put life insurance in trust?

It means the policy belongs to trustees, who hold it for the people chosen by the person who took it out. When the insured person dies, HMRC explains that the payout goes to whoever owns the policy. If the person who died owned it, the money becomes part of their estate. If trustees own it, the money goes to the trustees to pass on to the beneficiaries named in the trust (HMRC Inheritance Tax Manual, IHTM20012).

Does life insurance in trust count towards inheritance tax?

Usually not. A payout to trustees is not part of the estate of the person who died, so it is not added to the estate when working out inheritance tax. If the person who died had owned the policy themselves, HMRC says the payout would have formed part of their estate and been taxable. The premiums they paid count as gifts, but most are covered by the £3,000 annual exemption or the exemption for regular gifts made from income. The main exception is a trust that the person who set it up could still benefit from.

Do you need probate to claim life insurance in trust?

Usually not, because a policy held in trust is not part of the estate. A surviving trustee makes the claim. The exception is when the person who died was the only trustee. The Trustee Act 1925 lets their executor act for the trust, but only once the executor has obtained probate. If there is no will, the administrator needs letters of administration. The trust document may also allow someone to appoint new trustees instead.

Does a life insurance trust need to be registered with HMRC?

Not at first. HMRC's Trust Registration Service rules exclude trusts of policies that only pay out on death, terminal or critical illness, or disability. That exclusion continues for two years after the death. If the trustees pay the money out within two years, they never need to register. If the money is still in the trust after two years, for example because it is being kept for a child, the trust then has to be registered.

Can I put an existing life insurance policy in trust?

Usually yes, while the person insured is alive. Most insurers have a form for it. HMRC treats handing over an existing policy as a gift of what it is worth on that date, and every premium paid afterwards is a further gift. Ask the insurer what the policy is worth before transferring it. A policy cannot be put in trust after the person insured has died.

Who should be the trustees of a life insurance trust?

The person taking out the policy is often a trustee, along with at least one other person they trust, such as a partner, adult child or close family member. Having at least two trustees matters. If the person who dies was the only trustee, their executor can usually only act once they have obtained probate, which brings back the delay the trust was meant to avoid.

Is life insurance in trust taxed when it pays out?

The payout is not added to the estate of the person who died. If the trust is discretionary, the trust rules can apply. gov.uk says exit charges of up to 6% can apply when money leaves such a trust, and a 10-year charge only applies if the trust holds more than the inheritance tax threshold. Trustees holding a large payout should take advice before paying it out.

Life insurance in trust: how it works, inheritance tax, and claiming after a death

When someone takes out life insurance, they can choose to have the policy “written in trust”. It sounds technical, but it decides two things that matter to a family after a death: who receives the money, and whether it has to wait for probate. A policy in trust is paid to trustees, outside the estate, so in most cases the money reaches the family without waiting for probate and is not counted for inheritance tax.

If someone close to you has died and you have just been told their policy was in trust, the next section sets out what to do. The rest of the guide explains how these trusts work, for anyone setting one up or trying to understand one.

The short version:

A policy in trust belongs to the trustees. When the person insured dies, the insurer pays them
The payout is outside the estate, so in most cases it is not counted for inheritance tax and does not wait for probate
The premiums count as gifts, but most are covered by the £3,000 annual exemption or the exemption for regular gifts made from income
Trustees do not need to register the trust with HMRC if they pay the money out within two years of the death
Have at least two trustees. If the person who died was the only trustee, their executor normally needs probate before the claim can go ahead

If someone has died and their life insurance was in trust

This can feel like one more piece of paperwork at a hard time, but a policy in trust is often one of the simpler things to sort out. These are the usual steps.

Confirm the policy was in trust. If you are not sure, ask the insurer. It will need the policy number or the person’s details and a copy of the death certificate. If you cannot find any policy papers, our guide to what happens to life insurance when someone dies explains how to trace one
Find the trust document. It is usually kept with the policy papers, and the insurer will normally have a copy. It names the trustees and the beneficiaries, and shows whether the trust is absolute (fixed shares) or discretionary (the trustees decide)
Work out who the trustees are now. Where there were two or more trustees, the law lets the surviving ones carry on (Trustee Act 1925, s.18). If the person who died was the only trustee, see the next section
The trustees make the claim. The insurer usually asks for the death certificate, the policy number and proof of the trustees’ identity. Ask it for its exact list
The trustees pass the money on. With an absolute trust, each beneficiary gets their fixed share. With a discretionary trust, the trustees decide who receives what, guided by any letter of wishes the person left
Register the trust if money stays in it. If any of the money will be held for more than two years after the death, for example for a young child, the trustees must register the trust with HMRC (see registering a life insurance trust)

If you are a beneficiary but not a trustee, you do not claim from the insurer yourself. Contact the trustees named in the trust document. If you do not know who they are, ask the person dealing with the estate or the insurer.

If the person who died was the only trustee

In this case, someone will usually need probate, or letters of administration if there was no will, before the claim can go ahead. That is because the law passes a sole trustee’s role to their personal representative, meaning the executor named in their will or the administrator if there was no will, and an executor who has “not proved” the will (not yet obtained probate) cannot act (Trustee Act 1925, s.18).

In practice:

If there is a will, the executor applies for probate, then deals with the trust claim. Our guide to how long probate takes gives current timings
If there is no will, the person entitled applies for letters of administration, then deals with the claim
Either way, check the trust document. It may give someone else the power to appoint new trustees, which can be quicker. A solicitor can confirm whether it does and prepare the paperwork
Ask the insurer early what it will accept, so you are not waiting for the wrong document

What to tell the executor

Tell the executor the policy was in trust, so they can decide whether it needs reporting. The payout is outside the estate, but the premiums the person paid count as gifts. Where the estate needs a full inheritance tax account, HMRC says a policy set up in trust from the start, or given away later, is listed on form IHT403, the schedule of gifts (HMRC). Premiums covered by the annual exemption or paid regularly from income normally add no tax.

One unusual case needs the full inheritance tax account: gov.uk lists a person who “had a life insurance policy that paid out to someone other than their spouse or civil partner and also had an annuity” (gov.uk – Valuing the estate of someone who died). An annuity is a regular income bought with a lump sum, often from a pension. Our guide to how to pay inheritance tax covers the forms and deadlines.

If the policy was not in trust, the payout goes into the estate and is paid out under the will, or the intestacy rules if there is no will, once the executor has authority to collect it.

What life insurance in trust means

A life policy is property like any other, and HMRC confirms it can be “placed in trust” (HMRC). Once it is, the policy belongs to the trustees, who hold it for the beneficiaries.

Ownership is what matters on death. HMRC explains that the payout goes “to the person who owns the policy”. If that is the person who died, the payout “will form part of their free estate, so they will be taxable on their death” (HMRC). The free estate simply means everything the person owned outright.

There are three roles:

The settlor sets up the trust. This is usually the person whose life is insured, who also pays the premiums
The trustees own the policy, make the claim and pass the money on. The settlor is often one of them while they are alive
The beneficiaries are the people the money is for, often a partner and children

Most insurers provide their own trust forms, so a new policy can be written in trust as part of the application.

In trust or not in trust: what changes

	Policy in trust	Policy not in trust
Who the insurer pays	The trustees	The estate, through the executor or administrator
Counted for inheritance tax on the death?	No, in most cases	Yes, unless it passes to a husband, wife or civil partner
Needs probate before payment?	Usually no	Usually yes
Who decides who gets the money	The trust, and for a discretionary trust the trustees	The will, or the intestacy rules

Sources: HMRC; gov.uk – Applying for probate; gov.uk – How Inheritance Tax works.

For couples, the main gain is often speed. Money left to a husband, wife or civil partner is free of inheritance tax anyway (gov.uk), but a payout into the estate can still sit there until probate is granted, which gov.uk describes as “the legal right to deal with someone’s property, money and possessions”.

The two main types of life insurance trust

Insurers give their trusts different names, but they fall into two broad groups. The trust document shows which one applies.

Absolute trust

The beneficiaries and their shares are fixed when the trust is set up, and nobody can change them later, including the person who set it up. For tax this works like any other bare trust: the money counts as the beneficiaries’ own, and a beneficiary aged 18 or over (16 in Scotland) can ask for their share.

Discretionary or flexible trust

The trust names a group of people who might benefit, and the trustees decide who receives what and when. HMRC gives the example of a policy held for whichever of a person’s children survive them (HMRC). Many people choose this type for its flexibility. A child born after the policy starts can benefit, and money can be held back for someone who is young or vulnerable. A letter of wishes can guide the trustees.

Inheritance tax on a life insurance trust

Premiums count as gifts

HMRC treats taking out a policy for someone else as a gift of the first premium, and each later premium as a further gift, after any exemption (HMRC). Most premiums are covered by one of two exemptions:

The annual exemption. You can give away £3,000 a year free of inheritance tax, and carry any unused amount forward one tax year (gov.uk – Rules on giving gifts)
Regular gifts from income. Regular payments made from income, which leave you enough to keep up your usual standard of living, are exempt with no upper limit (HMRC). Monthly premiums paid from a salary or pension are the classic example. This exemption does not apply where the policy is linked to an annuity

Our guide to gift rules and the seven-year rule explains both exemptions and the records an executor will look for.

While the person insured is alive

An absolute trust has no inheritance tax charges of its own, because the policy already counts as the beneficiaries’ property.

A discretionary trust falls under the rules for “relevant property”, the term for most assets held in discretionary trusts. gov.uk says tax may be due every 10 years and when money leaves the trust, but the 10-year charge only applies “if your trust contains relevant property with a value above the Inheritance Tax threshold”, and exit charges are capped at 6% (gov.uk – Trusts and Inheritance Tax). What a policy is worth for these charges depends on the type of policy and the circumstances at the time, so trustees should take advice if a 10-year anniversary falls due. Our guide to the discretionary trust 10-year charge explains the calculation.

When the person insured dies

The insurer pays the trustees, and the payout is not added to the estate. There are two exceptions:

The person who set it up could still benefit. If they were one of the possible beneficiaries, HMRC may treat the policy as a “gift with reservation”, meaning a gift the giver kept a benefit from, and count it in their estate (HMRC)
They gave themselves a right to the income for life. HMRC says that a settlor given an express life interest in a policy on their own life is normally treated as entitled to it, which can bring it back into their estate (HMRC)

If you think either might apply, tell the executor and ask a solicitor to read the trust document.

Policies written in trust before 22 March 2006

Trusts set up before 22 March 2006 follow older transitional rules. The main practical point is that adding or changing beneficiaries can be taxed differently from a modern trust (HMRC). If you are a trustee of an older trust, check the date on the trust document and ask a solicitor before changing anything.

Does a life insurance trust need registering with HMRC?

Not at first. HMRC’s Trust Registration Service is the online register most trusts must join. Its rules exclude trusts of life policies that only pay out “on the death, terminal or critical illness or permanent or temporary disablement of the person assured”, whether term or whole of life (HMRC TRSM23030).

The exclusion carries on for two years after the death, which HMRC says “gives the trustees two years from the death of the person assured to distribute the funds to the beneficiaries of the trust before registration on TRS is required”. If the trustees pay everything out within two years, they never need to register. If they are still holding money after that, they must register. Trusts holding investment bonds that pay out regular withdrawals do not get this exclusion. Our Trust Registration Service guide explains how to register.

Common uses of a life insurance trust

Whole of life cover for an inheritance tax bill

Some people take out a whole of life policy in trust to leave their family a lump sum for an expected inheritance tax bill. Because the payout is outside the estate, it does not add to the tax it is meant to cover. The trustees pay the money to the beneficiaries, who are often the same people inheriting the estate and can use it towards the bill. gov.uk says inheritance tax must be paid by the end of the sixth month after the death, and that a payment towards it is usually needed before probate can be granted (gov.uk – Pay your Inheritance Tax bill), so money available outside the estate can help with timing.

Mortgage and family protection

Term policies taken out to repay a mortgage or replace a family’s income are often written in trust so the money reaches the family quickly. If a policy was assigned (signed over) to a mortgage lender as security, check with the lender and the insurer how the payout will be split before relying on the full amount.

Putting an existing policy in trust

An existing policy can usually be put in trust while the person insured is alive, using the insurer’s form. HMRC treats handing it over as a gift of what it is worth on that date, and each premium paid afterwards as a further gift (HMRC). Ask the insurer what the policy is worth first, so you know the size of the gift and whether the £3,000 annual exemption covers it.

This cannot be done after the person insured has died, because the policy then belongs to their estate.

Gift and loan trusts

A gift and loan trust is an investment product sold through financial advisers, separate from life cover. HMRC describes the usual pattern: a small gift sets up the trust, then a much larger interest-free loan is made to the trustees, who invest it in insurance bonds. Growth on the investment sits outside the estate, while whatever is still owed on the loan stays in the estate (HMRC). After a death, HMRC checks whether the arrangement followed the standard pattern (HMRC).

Where to get help

Your insurer can send its trust forms and explain the options it offers. For anything beyond a standard form, such as a large policy, a blended family, an older trust or a trustee who has died, a solicitor who specialises in wills and trusts, or an independent financial adviser, can help. The inheritance tax hub and our guide to inheritance tax exemptions and reliefs cover the wider picture, and our guide to trusts in a will explains how trusts created by a will differ.

Last verified 18 October 2026.