What a trust does with your policy
A trust is a legal arrangement where one group of people, the trustees, look after money or property for the benefit of others, the beneficiaries. When you write a life policy in trust, you place the policy into that arrangement. If you die, the insurer pays the trustees instead of your estate.
The trustees then pass the money to the people you named, following the rules of the trust. You still pay the premiums, and the cover itself works the same way as any other policy. The only change is who receives the payout and how quickly they can get it.
Why so many families choose a trust
Speed is the first reason. Without a trust, the payout becomes part of your estate, and your executors usually need a grant of probate before the insurer will release it. Probate can take many months. With a trust, the trustees can claim using the death certificate and the trust deed, so the money can reach your family much sooner.
Inheritance tax is the second. A payout to your estate counts towards its value, which could push it over the tax-free threshold. A policy written in trust usually sits outside your estate, so the payout is not added to it. A trust also gives you control: you decide who benefits, and the money cannot end up with someone you did not intend.
- Faster payout, with no wait for probate
- Usually kept outside your estate for inheritance tax
- You choose exactly who benefits
- Helps protect money meant for children until they are older
Choosing your trustees
Trustees are the people who make the claim and hand the money to your beneficiaries. Most people choose two or more adults they trust to act sensibly, such as a partner, a sibling, a close friend or a parent. With many insurer trust forms, you are a trustee yourself while you are alive.
Pick people who are likely to be around and willing to help for the length of your policy. If your beneficiaries are young children, your trustees may hold and manage the money for them until they reach an age you are happy with. You can usually change trustees later if your circumstances shift.
The main types of trust in plain words
An absolute trust, sometimes called a bare trust, names fixed beneficiaries who cannot be changed once it is set up. It is simple, but it offers no flexibility if your family changes. A discretionary trust names a wide group of possible beneficiaries, and the trustees decide who receives what when the time comes, guided by a letter of wishes you leave them.
A flexible trust sits between the two. It names default beneficiaries but lets the trustees redirect money within a wider group if needed. If your policy includes critical illness cover, insurers often offer a split trust, which keeps any critical illness payout for you while the life cover goes into trust for your family.
Things to think about before you sign
Once a policy sits in trust, you cannot simply take it back out, so it is worth choosing the right type at the start. Discretionary and flexible trusts follow their own tax rules, and we explain how they apply to your policy before you decide. If a lender requires the policy to be assigned to them, a trust may not be possible.
If your estate is large or complicated, or you own a business, you may want a solicitor or tax adviser to look at the bigger picture alongside us. Keep a copy of the trust deed somewhere your trustees can find it, and tell them where it is.
How Hi Tomorrow sets up your trust
When we arrange your policy, we talk you through whether a trust suits you and which type fits your family. We help you complete the insurer's trust form, check that trustees and beneficiaries are named correctly, and make sure the paperwork reaches the insurer. There is no extra charge for this.
If you already hold a policy that is not in trust, we can usually help you put it into one by using your insurer's own forms. We will check the insurer's rules first and explain anything that affects your situation.