Life Insurance in Trust: Why More Families Are Doing It

The number of life insurance policies written in trust has almost tripled in five years. New figures from the protection specialist Stonebridge, reported last week by Today's Wills and Probate, cover 8,000 policies. They show that 14.3% of life policies were placed in trust in 2026, up from 5.3% in 2021. The main reason is speed. A payout that goes into your estate has to wait for probate, while one held in trust usually doesn't.

That gap can matter a great deal to a grieving family with a mortgage and bills to pay.

What Happens to Life Insurance Without a Trust?

If you take out a life policy in your own name and don't put it in trust, the payout is made to your estate when you die. It's then treated like any other asset you own.

Your executors usually need a grant of probate (or letters of administration if there's no will) before the insurer will release the money. Probate can take months, especially if the estate is complex or there are delays at the Probate Registry. Until it's granted, the people you took the policy out to protect may not be able to touch the money.

The payout also forms part of your estate for inheritance tax purposes. It could push the estate over the nil-rate band or increase the tax bill, which reduces what your family receives.

How Does Writing a Policy in Trust Help?

When a policy is written in trust, the payout goes to the trustees you've named, not to your estate. The trustees then pay it out to your chosen beneficiaries according to the trust's terms.

That has three main advantages:

• Speed: trustees can usually claim with a death certificate and the trust deed, without waiting for probate.
• Inheritance tax: a policy held in a suitable trust generally sits outside your estate, so the payout itself isn't normally taxed on your death.
• Control: you choose who benefits and can set conditions, which is useful if your children are young or your family situation is complicated.

Most insurers provide trust forms free of charge, and many policies can be placed in trust after they've started, not just when you take them out.

Why the Shift Is Happening Now

The rise matches regulatory pressure. The Financial Conduct Authority's Pure Protection Market Study encourages more use of trusts and nominated beneficiaries so that claims are paid faster. Advisers are now asking customers about trusts as a matter of course, not as an afterthought.

The wider tax picture is also changing. The government has confirmed that most unused pension funds and death benefits will come into the inheritance tax net from April 2027. As more families find their estates closer to the threshold, keeping a large life insurance payout outside the estate is becoming more valuable. The Budget on 28 October may bring further changes, so it's worth reviewing your plans afterwards.

When a Trust Isn't the Right Answer

Stonebridge itself warns that policies shouldn't go into trust automatically. There are situations where a trust needs careful thought:

• Mortgage protection policies may need to pay the lender directly.
• Once a trust is set up, it can be hard to undo. Choosing the wrong type of trust, or the wrong beneficiaries, can cause problems if your relationship breaks down or your family changes.
• Trustees need to be chosen carefully. They must be willing, trustworthy and able to act quickly. It's sensible to name at least two.

A policy in trust also sits apart from your will. If you update your will but forget the trust, the two could pull in different directions.

Making Your Will and Your Trust Work Together

The best results come when your life insurance, pensions, property and will are planned together. A solicitor can check that your trust fits your wider estate plan, advise on the inheritance tax position and make sure everyone who depends on you is properly provided for.

What Should You Do Next?

If you have life insurance and aren't sure whether it's in trust, or whether it should be, now is a good time to check. The QualitySolicitors first contact team can put you in touch with an experienced wills and probate solicitor near you. They'll review your arrangements and help make sure your family gets the money when they need it most. Get in touch today to arrange a conversation.