Putting life insurance in trust can help beneficiaries avoid inheritance tax (IHT) on the payout and potentially receive the money more quickly, according to Which?.
A survey conducted by Which? in September and October 2026, involving 2,111 panel members, revealed that 78% of their members do not have a life insurance policy. Of those who do, only 14% have placed their policy in trust. The main reason cited by 45% of those who took this step was to ensure the payout is not counted as part of their estate for IHT.
The legal arrangement means the lump sum does not count as part of the deceased's estate, allowing beneficiaries to receive the full amount and settle IHT bills faster. This is because the payout can be made to trustees without waiting for probate.
However, Which? highlights potential pitfalls, such as locking in unsuitable terms or delaying payment. It is important to choose the right type of trust, as a bare trust generally locks in beneficiaries, while a discretionary trust offers more flexibility. Regularly reviewing beneficiaries and selecting accessible and knowledgeable trustees are also crucial.