The word “trust” has a habit of making people’s eyes glaze over. It sounds like something for wealthy families with complex estates, managed by accountants in oak-panelled offices.
In reality, a discretionary trust for life insurance is a simple, practical tool that anyone with a life insurance policy should know about — and most don’t.
Here’s what it is, what it does, and why it matters.
Start with the problem
When you die, your assets go through probate before they can be distributed to your family. Probate is a legal process, it takes time — often nine to twelve months — and everything in your estate sits frozen until it’s complete.
If your life insurance policy isn’t structured properly, the payout goes into your estate and gets caught in probate along with everything else. Your family has to wait, potentially for the better part of a year, for money that was supposed to protect them.
A discretionary trust solves this.
"It takes 20 minutes to set up. Most advisers don't offer it. We include it with every policy — here's why."
What a trust actually is
A trust is a legal structure that holds assets separately from your personal estate. You transfer the life insurance policy into the trust, which is then managed by trustees — people you appoint and trust.
When you die, the insurer pays the lump sum into the trust. The trustees then distribute it to the beneficiaries — your family, friends, or whoever you name — according to your wishes. Because the money sits in the trust and not in your estate, it bypasses probate entirely.
What makes it discretionary?
A discretionary trust gives the trustees the flexibility to distribute the money at their discretion — in whatever proportions they see fit, at whatever time makes most sense.
This is more flexible than a fixed trust, where specific amounts go to specific people. A discretionary trust allows trustees to respond to circumstances you couldn’t have predicted when you set it up. If circumstances change — a beneficiary has different needs, tax rules shift, a grandchild is born after the trust is created — the trustees have the flexibility to act in the best interests of the family.
Most insurers recommend discretionary trusts for this reason. The flexibility tends to produce better outcomes for families.
Who are the trustees?
You need at least two trustees. Most people appoint their spouse or partner as one trustee, and a trusted friend, sibling, or parent as the other. The trustees aren’t given the money themselves — they hold it on behalf of the beneficiaries and distribute it according to your wishes.
You can also name yourself as a trustee, which some people prefer because it means you retain some control over the trust while you’re alive.
The three big benefits
Speed — the money reaches your family in weeks rather than months, because it bypasses probate.
Tax efficiency — the payout sits outside your estate, so it doesn’t contribute to your estate’s value for inheritance tax purposes. For estates above the nil-rate band, this can save families tens of thousands of pounds.
Flexibility — the trustees can distribute the money in response to your family’s actual circumstances at the time, rather than being locked into instructions made years earlier.
How complicated is it to set one up?
Not complicated at all. Most insurance companies provide a trust form alongside the policy. You complete it, sign it, have it witnessed, and send it back. The whole process takes around twenty minutes.
We set up trusts as part of every policy we arrange, at no extra cost. Because in our view, a life insurance policy without a trust isn’t really complete.
What if you already have a policy?
If your existing policy isn’t in trust, you may still be able to write it into trust — it depends on the insurer and your policy type. It’s worth asking. Contact your insurer and ask whether your policy can be assigned to a trust. Many can.
If you’re not sure whether your policy is in trust, check your documents. If you don’t have them, ask your insurer directly. The question is: “Is this policy written in trust, and if not, can we change that?”
