What you need to know about setting up a trust for your life policy.

A trust is a simple legal arrangement that allows you (the settlor) to gift your life insurance policy to someone else (the beneficiary). It's a great way to ensure that your life insurance is not considered to be a part of your estate when you die, so your beneficiaries won't face the burden of inheritance tax on your life policy.For joint life policies, both of you must agree to place your policy in trust.

Setting up a trust means that you (the settlor) give your policy to the trustees who then legally own your policy and look after it for the benefit of your beneficiaries. You will still be responsible for paying the insurance premiums, but the trustees will be responsible for keeping the trust deed and any other documents safe. They make the claim on your policy and ensure that the money goes to your beneficiaries as you intended.

Depending on the type of trust you set up, it can provide lots of flexibility to change who will benefit and when, so that your changing circumstances - such as having more children or grandchildren - can be taken into account.

There are also inheritance tax benefits, because the value of your policy in the trust is not generally considered to be part of your estate when you die, leaving more for your beneficiaries.

There are three key roles in a trust:

• The settlor (or settlors) - The person giving away their life insurance policy is called the settlor, and if you have a joint policy then both policy holders are automatically joint settlors. Once the settlor has put their policy into trust they no longer personally own it, as it's owned by the trust, so they have limited rights to say how it's dealt with. However, the settlor is still responsible for paying the insurance policy premiums and is also usually a trustee, so they do retain some influence on how the trust is managed as a trustee. The settlor chooses the trustees and the beneficiaries and completes the trust form to set up a trust.


• The trustees - The trustees are the people you choose to look after the trust, make any future claims, and arrange for the money to be paid to your beneficiaries in line with your instructions. As the settlor, you are automatically a trustee. Once the policy is put in trust, the trustees take legal ownership of the trust fund from you and must then act in the best interests of all the beneficiaries at all times, and can only do what is allowed in the trust deed.


• The beneficiaries - These are the people (or person) who you want to receive the money from the trust fund.

Most life policies can be put into trust, so anyone who owns a policy can set one up. If you're not sure if your policy can go into a trust, use the Select section of this trust tool for guidance or seek specialist advice to help you understand all of your options.

If a policy is not placed in trust, the policy proceeds may not go to the people who you want to receive it.

Without a trust, for a joint policy, the policy proceeds will automatically be paid to the survivor.

However, for a single life policy not placed in trust, there could be a delay before your spouse or partner receives the policy money. This is because when you die, if your policy is not in trust your personal representatives will need to obtain probate so that they have the authority to deal with your estate. The policy money will then be distributed in accordance with your will, or the laws of intestacy if you have not made a will.

The worst case could be if you are not married, and have not made a will, your partner may not be legally entitled to the policy proceeds at all unless placed in trust. You may wish to seek specialist advice about which trust may be the best trust for you and to get advice from an Independent Financial Adviser. Find one here

You can also give your trustees a letter telling them how you would like the money shared out, which is called a Letter of Wishes PDF: 44KB.

If your policy is not in trust and you have not made a will, your partner may not be legally entitled to the policy money.

Therefore to try and gain access to the money your personal representatives will need to obtain probate so that they have the authority to deal with your estate.

However, you can usually only apply for probate (a grant of representation) to be the administrator of the estate if you’re the person’s next of kin, eg their spouse (or registered civil partner) or child. You can also apply if you’d separated from the person but you were still married or in a registered civil partnership when they died.

Unfortunately, you can’t apply for a grant of representation if you’re the partner of the person but weren’t their husband, wife or registered civil partner when they died.

The policy money will then be distributed in accordance with your will, or the laws of intestacy if you have not made a will. This means there could be a delay before your spouse receives the policy money or where there are children involved it could be mean that some or all of the money goes to them in accordance with the laws of intestacy.

The worst case could be if you are not married or in a registered civil partnership and have not made a will, as your partner may not be legally entitled to the policy proceeds at all unless placed in trust. You may wish to seek specialist advice about which trust may be the best trust for you and to get advice from an Independent Financial Adviser. Find one here

• A trust is a good way to help you both decide now, who you want to benefit from the insurance money.
• For example an unmarried couple’s extended family, may have differing views on who the beneficiaries should be, when a claim is made on a joint life policy.
• For example, John Smith and Lisa Cole buy a joint life policy together for £150,000. When John dies, the money is paid to Lisa direct as it’s a joint policy and she is the survivor on the policy. However John had two children, Sam aged 9 and Luke aged 6 from his first marriage. John’s ex-wife is dead and the grandparents believe the money should have gone to help provide for his children’s future not Lisa’s, so take Lisa to court to fight for the money

If the policy had been placed in a trust, it would have been outside of the estate with clear instructions as to who John wanted to receive the money, depending on both Lisa and John’s joint decision up front , helping to avoid any future issues.

There are three key benefits to putting life policies in trust:

• Control - You specify who your beneficiaries are, and who you trust to act on your wishes. This can be really important if you're not married or in a registered civil partnership, as without a trust the money forms part of your estate (how much all your assets are worth) and may not automatically go to who you want. It's also important when there are children involved, as it can help ensure that they receive some financial support, but do not get full access. During your life you will also be one of the trustees, so you can work with the other trustees to ensure the money goes to who you intended.


• Avoiding Inheritance Tax - When a life policy is not held in trust, it will normally be considered part of your estate, meaning that it can be subject to inheritance tax (40% of any part of your estate over nil rate band which is currently £325,000 as at 1 July 2016). Using a trust should mean that the money paid out from your life insurance will not be part of your estate, increasing the amount of money passed on to your loved ones.


• Faster payment of the money - Using a trust should help ensure that the money paid out from your life insurance can be paid to the people of your choice quicker, without the money being held up in the estate waiting for lengthy legal processes, such as gaining a grant of probate.

Our trust service is free and simple to use. In just a few easy steps you can ensure that your life insurance money is put in trust, so it goes to who you intended, faster, quicker and without a lengthy legal process. Visit our Select or Complete areas of this tool for more help in setting up your trust.

Once the trust has been created it cannot usually be cancelled before it has served its purpose and the policy cannot be cancelled without the permission of the trustees.

Yes, in order to ensure we can pay the policy proceeds to your trustees quickly and easily, please remember to tell us of any changes to their personal contact details as soon as possible, so our records are up to date.

Just send us a letter confirming your policy number and their new details/address. For a change of name we would need to see the Marriage certificate or relevant change of name papers.

We can help you create your trust in a few easy steps. Our Select tool can be used to help you choose which trust could be right for you, or if you already know then you can go straight to our Complete tool. If you prefer you can also get some help from a specialist adviser.

As the person setting up the trust, you are called the settlor (or donor for an absolute trust), and you need to complete a trust deed which you and your trustees have to sign and date and then send to us. There are three parties involved: you (the settlor), your beneficiaries, and your trustees. Your beneficiaries don't have to do anything to set up the trust.Please remember, for joint life policies, you must BOTH agree and sign the trust deed, to place your policy in trust. The trust will not be valid if only one of you has signed it.

Creating your trust deed on this tool means you can print it at home or with your adviser. You can also print out a blank form if you prefer. Whichever route you choose you will need to complete any missing information and send it back to us after you have signed the form with your trustees.

The trust will usually only end once the policy has ended and there is nothing left in the trust - this could be once a claim has been made and the trustees have distributed all of the insurance money to the beneficiaries. Or it could be if the length of time the policy was taken out for has ended and a claim has not been made.

Once the trust has been set up, it cannot usually be cancelled before it's served its original purpose. This means it's really important that you're sure our trusts are right for you before you complete one.

You can put your personal life insurance policy into trust when you take it out, or at any time after that. All that is required is that you own the policy. Sometimes people transfer ownership of their life insurance policies - for example by providing it as security for a loan, or to pay for a funeral where the policy has funeral cover - which may mean that a trust cannot be used. If you're not sure that you own your policy you should get advice from a specialist.

If you have a policy from us with funeral cover included, then it will be in part assigned to Dignity our partner, so you will need to contact Dignity directly on 0800 456 1047. Calls may be recorded and monitored.

The people you ask to be the trustees control the trust. They are the legal owners and they are responsible for managing the trust. They look after the trust fund and following a claim on the policy will make arrangements for the payments to be made to the beneficiaries.

The settlor does not control the trust, though you are usually still responsible for paying the premiums on your policy. You're automatically a trustee so you will have a role to play in making plans and managing the trust.

The beneficiaries do not control the trust, although in some circumstances they can force trustees to act, for example, with an absolute trust, if all the beneficiaries are over 18 years old and of sound mind, they can act together to give directions to the trustees.

The settlor (person giving away their life insurance) is responsible for paying the insurance premiums. If the policy is cancelled because payments lapse, the trust also comes to an end.

The settlor cannot cancel the policy themselves, without the trustees permission and all of the trustees must be in agreement. However, if the settlor stops paying their premiums, the trustees can't force them to pay and if nobody else pays the policy will usually lapse. If the policy lapses the trust will also come to an end.

We have four types of trusts. Absolute, Discretionary, Survivor's Discretionary and Flexible Trusts.

• Discretionary Trusts are the most flexible we offer.
• Survivor's Discretionary Trusts are for joint life policies where the money will be paid when the first person dies.
• Absolute Trusts are for when you wish to make a complete and final list of your specific beneficiaries, without the ability to change or add beneficiaries in the future.
• Flexible Trusts are a more complicated kind of trust with a mix of default and discretionary beneficiaries.

They are all "split trusts" which means that any Critical Illness or Terminal Illness Cover can still be used to benefit the original policy holder (the settlor), while any payment after your death is used for the beneficiaries. Or, you can choose to give away your critical illness or terminal illness benefits too, to your beneficiaries if these apply to your policy, if you prefer.

A Discretionary Trust is the most flexible type we offer.

The types of people who may benefit are listed in the trust deed and include your spouse, children and other family members.

You can add other people you would also like to be potential beneficiaries. However none of the beneficiaries can be sure they will benefit from the trust as it is the trustees who choose which potential beneficiaries will receive any money, how much and when.

It is called a Discretionary Trust because the trustees have a lot of discretion about who to pay. As such a simple letter from you stating what you would like to happen to the money, which is called a letter of wishes is often a helpful way to give the trustees guidance. This letter to the trustees can be rewritten at any time but should always be sent directly to the trustees (we don't need to see it).

A survivor's discretionary trust is similar to our standard discretionary trust, however it's only suitable for joint life policies, where the insurance money is paid after the first person dies. It is different from a standard discretionary trust because, in a survivor's discretionary trust, if one of the original policy owners (settlors) dies but the other settlor survives, the survivor will be entitled to the money from the policy. If both settlors die within 30 days, then the discretionary beneficiaries will benefit in the same way that they would for a standard discretionary trust.

An absolute trust is the least flexible type of trust that we offer. The beneficiaries are named individuals who cannot be changed in the future. For example, children born later cannot be included or a spouse cannot be removed following a divorce. The beneficiaries are absolutely entitled to the trust fund, and the trustees do not have discretion on who to pay.

A flexible trust is similar to a discretionary trust, but it is more complicated. There are two types of beneficiaries. The first type of beneficiary is the default beneficiary. These beneficiaries are people who are entitled to any income from the trust as it arises. In practice, if the life policy is the only asset in the trust there will not usually be any income until after the claim is made. The second type of beneficiary is the discretionary beneficiary. These discretionary beneficiaries are people who your trustees can decide to give money to at their discretion. They only receive capital or income from the trust if the trustees make appointments to them during the trust period. If no appointments are made by the end of the trust period, the default beneficiaries will receive all of the benefits.

If you think a flexible trust is right for you, you may wish to consider taking specialist advice on this before using the Complete tool to create your trust deed.

The trust Select tool can help you consider your trust choices in a few easy steps. You can then create your trust deed in minutes using the Complete section of our tool if you have one of the following types of Legal & General policies:

• Life Insurance (Level or Decreasing Cover)
• Critical Illness Cover
• Family and Personal Income Plans
• Whole of Life Protection Plan
• Over 50's Life Insurance

You might wish to seek specialist advice if you are considering the use of trusts on any of the following types of policies:

• Relevant Life Plan
• Income Protection Benefit
• Pension related products, including Tax Efficient Life Insurance Plan (TELIP)
• Investment products
• Any non-Legal & General products

Yes, in most circumstances you can. However, it's important to note that with the Discretionary, Absolute and Flexible trusts, if the money from the insurance policy is payable on the first person to die (the first settlor), the surviving person on the policy would not be a beneficiary and therefore would be unable to receive any of the money. If you want the surviving person or life assured to be a beneficiary of the trust you should consider using our Survivors Discretionary Trust.

Our Survivors Discretionary Trust is a special trust that is for use with joint life insurance policies that pay out on the first death. The surviving person becomes your beneficiary, but if they should die within 30 days of you then your children or other loved ones become the beneficiaries automatically.

The beneficiary is any person or people that you would like to receive the money from a claim on your policy. You can choose to name specific people and how much they will get in an Absolute Trust. Or if you think your family circumstances may change in the future or you want to leave your policy in the hands of someone you trust to share out your insurance money, you can choose a Discretionary Trust. Why not use the Select part of this trust tool to help you decide which is the right option for you.

Yes, but it depends on the type of trust you have.

Under a Discretionary Trust, your trustees have the flexibility to choose from a wide list of people, and can decide when and how much each person will get from the insurance policy money you put in trust. You can help them decide by giving the trustees a letter of how you would like the money shared, this is called a 'letter of wishes'.

However it is not possible to change your beneficiaries if you set up an Absolute Trust.

The trustees are people you appoint to be the legal owners of your policy. The trustees will inform us of any claim and receive the insurance money and then pass it on to your beneficiaries. You will automatically be a trustee on your trust.

We usually suggest that a maximum of four but a minimum of three trustees however it's up to you to decide how many trustees you want. You are automatically a trustee, and so is any other person named on your policy if your life insurance is a joint policy. You must appoint at least one other trustee, but you can choose more than that.

Your trustees need to be over 18, and it's usually easier if they're UK taxpayers who live in the UK. If you want non-UK trustees, you might want to consider taking specialist legal and tax advice on this.

Choosing who will be a trustee is an important decision and one that you should consider carefully. Many people choose a family member or friend, while some choose to appoint a professional trustee (such as a trust company) or a solicitor or an accountant. You can choose a mix of both. You should pick at least two trustees, and these should be people you trust to act in the best interests of your beneficiaries.

Yes, trustees can change for a number of reasons. A trustee may want to retire, and they can do this if all the trustees agree. To change a trustee, all the trustees must agree including the trustee being changed. Please contact us so we can send you the correct forms.

If a trustee dies, the remaining trustees can still carry on but a replacement may be needed.

The trustees take legal ownership of the trust fund. Where a protection insurance policy is the only thing in the trust, they will usually not have much to do until the time comes to make a claim. When making trust decisions they must agree with all of the other trustees and must act in the best interests of the beneficiaries. Trustees are not allowed to profit personally from their role as trustee.

To make a claim, the trustees will need:

• the trust deed (and any subsequent deeds)
• the original insurance policy schedule and
• the death certificate or medical evidence for any terminal or critical illness claims.
  They should then contact us to start the claim process.

Our claims team are specially trained by the Samaritans, so you know that your trustees will speak to someone who understands that this may be a difficult time. We make every effort to pay claims quickly.

The main tax which is affected when insurance protection policies are placed in trust is inheritance tax (IHT). Inheritance tax is usually payable on all of the assets that you own when you die-including your house and any life insurance policy payout.

You can reduce your potential IHT bill by using a trust for your life insurance policy. Once a policy is placed in trust, it will not usually form part of your estate. This means that the money which is subject to inheritance tax when you die may be less, thereby increasing the amount of money that your loved ones receive after your death.

Everybody has a nil rate band currently* £325,000, which means that IHT would not be payable, if your estate is worth less than this. In addition there are some exemptions which can help to reduce the value of the estate. If you are unsure of your IHT position, you may wish to take specialist advice.
*As at 1 July 2016

IMPORTANT POINTS TO NOTE

It's important to understand that in some cases, the trust itself might have to pay tax. However in the majority of cases, there are unlikely to be significant tax considerations, before the life policy pays out and also after a claim, as long as the money is paid out of the trust immediately.

However tax considerations can become increasingly important if the money is held in trust for longer and you might wish to seek professional advice to help with this.

In particular if you have a Family and Personal Income Plan (FPIP) policy, which usually pays out a monthly amount after your death for the length of time you decided, the potential for tax within the trust is higher.

The different types of trust are treated differently for IHT purposes. Discretionary, Survivors Discretionary and Flexible trusts are all types of relevant property trusts (RPT) and are largely treated in the same way; Absolute trusts are treated differently.

If you need more information about tax, our technical guides provide some further detail, or you may wish to seek specialist advice.

If you would like to know more why not read one of our detailed guides below.

You can also find other useful forms here too.

Your Trust Choices (W12720)
PDF: 223KB

Discretionary trust form (W12645)
PDF: 90KB

Discretionary trust guide (W12709)
PDF: 285KB

Absolute Trust Deed (W12710)
PDF: 82KB

Absolute trust guide (W12711)
PDF: 273KB

Survivors Discretionary Trust Deed (W13396)
PDF: 87KB

Survivors Discretionary Trust Guide (W13397)
PDF: 279KB

Flexible Trust Deed (W12712)
PDF: 134KB

Flexible trust guide (W12713)
PDF: 79KB

Guide to being a Trustee (W13820)
PDF: 44KB

Additional Trustees Form
PDF: 56KB

Letter of wishes
PDF: 44KB

Deed of Exclusion
PDF: 53KB