Writing a policy in trust

What is a trust?

A trust is a legal arrangement that allows the owner of a life policy (the settlor) to give their policy to a chosen group of people (the trustees), who look after it on behalf of the people the settlor wants to benefit (the beneficiaries). When a policy is held this way it is said to be "in trust", and the policy together with any payout it generates is called the trust fund.

The trustees have discretion over which beneficiaries receive money, how much, and when — always guided by the settlor's wishes.

Why bother?

• Speed. Proceeds are paid to your trustees rather than into your estate, so there's no wait for probate or letters of administration — days instead of weeks or months. Without a trust, your estate can effectively be "frozen" during that process, leaving little money available to those who need it.
• Inheritance tax. The payout normally sits outside your estate, so it isn't counted towards the 40% IHT threshold. Without a trust, up to 40% of the proceeds could be lost to tax — which rather defeats the object of arranging cover in the first place.
• Control. You choose who administers the money and leave a Letter of Wishes describing how you'd like it used — including staging payments to children so they receive support without immediate full access.

Joint life first-death policies may pay out without probate, but most single-life policies will not — which is why writing the policy in trust matters.

The people involved

Settlor

You — the person taking out the policy and creating the trust.

Trustees

Two or more people you trust to look after the policy and pay out to your beneficiaries. Most clients pick a spouse plus a sibling, adult child or close friend.

Beneficiaries

The people who receive the money — usually a spouse, children or other named individuals. You can also name "the children of the settlor" so future children are automatically included.

The role of a trustee

Trustees legally own the policy but can't benefit from it themselves (unless they are also a named beneficiary). Their job is to manage the trust fund for the beneficiaries and act in line with your wishes. It's an important role and shouldn't be taken lightly.

A trustee's general duties

• Act in the best interests of the beneficiaries.
• Look after the trust fund without profiting personally or causing it loss.
• Act impartially and treat all classes of beneficiaries fairly.
• Meet the statutory duty of care under the Trustee Act 2000 — using the care and skill that's reasonable in the circumstances.

Who makes a good trustee?

• Ideally two or three trustees in total.
• Aged 18 or over.
• Of sound mind and ordinarily UK-based.
• Ideally at least one trustee who is independent of the family.
• A beneficiary can also be a trustee, provided they are 18+.

Which trust do I need?

For most family protection cases a discretionary trust offers the best mix of flexibility and IHT efficiency. If certainty matters more than flexibility — for example a specific person must receive a specific amount — an absolute (bare) trust may suit better. Complete our trust request form and we'll recommend the right one.

Alongside the trust, most clients also leave a Letter of Wishes to guide the trustees — read our Expression of Wishes guide or jump straight to the draft Letter of Wishes template.

Good to know

The Financial Conduct Authority does not regulate trusts or inheritance tax planning. This guidance reflects MMPE's understanding of current rules and is for general information — it isn't personal advice or a recommendation, and rules can change.