Should I write my family income benefit policy in trust?

Family income benefit is a type of life insurance that pays your family a regular income if you die during the term, rather than a single lump sum. The money is paid out in instalments until the policy ends, and it is not taxable¹. Because the payout is an income rather than a pot of cash, how it is held matters: if the policy is not written in trust, the payout will usually be treated as part of your estate when you die².

Writing the policy in trust is the step that changes this. All life insurance policies can be written in trust, including family income benefit, and it is free of charge¹. The trust keeps the payout outside your estate, so it is not counted for inheritance tax, and it usually means the money reaches your family faster because it does not have to wait for probate².

So the short answer is yes, for most people it is worth doing, and it costs nothing to arrange. But a trust is a legal arrangement you generally cannot undo, and it is not right in every circumstance. This page sets out what a trust changes, how to set one up, and where it may not suit you.

Writing family income benefit in trust costs nothing

There is no charge from the insurer to put a life insurance policy, including family income benefit, into trust¹. The insurer provides the form, and you complete it at the same time as, or after, you take out the policy. Writing your policy in trust can be done at any time by filling out the insurer's form⁶.

The cost only appears if you want professional help. You can contact a legal professional to discuss putting your life insurance into a trust, and you will need their guidance to set up a trust deed outlining the terms, trustees and beneficiaries⁷. A solicitor or financial adviser will charge for that work, and if you put an existing policy in trust later, the extra paperwork may also carry a cost if you use an adviser or solicitor².

For comparison, other legal and financial arrangements carry their own costs. It does not cost anything to write your own will, though a solicitor will charge for drafting one⁸. A family-based child maintenance arrangement is free⁹. These are separate matters, but they show that the free route usually means doing the paperwork yourself.

The trust itself is not a product you buy. It is a legal arrangement that sits around the policy, and the insurer's form is the usual way to create it. If your circumstances are straightforward, the form is often all you need.

What a trust changes about the payout

The core change is where the money sits. If the policy is written in trust, the payout will usually sit outside your estate for inheritance tax purposes². Without a trust, the payout will usually be treated as part of your estate when you die². Inheritance tax is charged on estates valued above £325,000⁴.

The second change is speed. The main benefit is that the payout can usually be released more quickly because it does not normally need to wait for probate². Payment into trust means the family receives money sooner, as they will not have to wait for the often lengthy probate process, and it does not form part of the estate so is not subject to inheritance tax¹⁰.

The third change is who controls the money. With a flexible trust you decide who receives any payouts, and you can change the policy in future, such as changing beneficiaries⁷. The trustees hold the policy and pay the income to the people you have named.

Family income benefit pays a regular tax-free income to your family in the event of your death, paid incrementally rather than as a lump sum⁵. It is a decreasing policy: the amount that would be paid reduces over the term, so if you died in year 25 of a 30-year policy, your family would receive the income for the final five years only¹. A trust does not change that structure. It changes who receives the income and how quickly, not how much or for how long.

How to put a family income benefit policy in trust

The process is short, and most of it is paperwork.

1. Decide who you want to benefit, and who will act as trustees.
2. Ask the insurer for its trust form, or instruct a solicitor to draw up a trust deed.
3. Complete the form naming the trustees and beneficiaries, and return it to the insurer.
4. Keep the trust documents somewhere your trustees can find them.

You can contact a legal professional to discuss putting your life insurance into a trust, and you will need their guidance to set up a trust deed outlining the terms, trustees and beneficiaries⁷. Writing your policy in trust ensures the money goes straight to your beneficiaries without going through your estate first, and it can be done at any time by filling out the insurer's form⁶.

Trustees can be family members, friends or perhaps a solicitor². They should be people you will easily be able to contact in future, and ideally not also beneficiaries³. That last point matters: a trustee who is also a beneficiary is in a position of conflict, and the arrangement is cleaner if the roles are kept separate.

Where a trust may not suit your circumstances

A trust is not reversible in the way people often assume. Once you put a policy in trust, you generally cannot simply change your mind, and depending on the type of trust it may be difficult to change the beneficiaries or take the policy out of the trust later². If your circumstances are likely to change, that matters.

Some trusts are more rigid than others. With a Controlled Access Account, you cannot change the beneficiaries once the trust has been set up¹¹. With a Family Tree account, once the account is open the beneficiary cannot be changed¹². A flexible trust is more adaptable, but it is not the only kind, and the terms of the one you sign are the ones that apply.

A trust also does not replace a will. Writing life insurance in trust can help make sure the policy payout goes to the right people, but it does not deal with everything else you leave behind². You still need a will for your other assets, and it does not cost anything to write your own will⁸.

There is a further point about gifts and trusts generally. For inheritance tax purposes, placing assets into a trust is treated in the same way as making a gift: the assets could be subject to inheritance tax if you die within seven years, but fall out of your estate if you live longer¹³. That rule is about gifts into trust, and it is worth understanding before assuming a trust removes every tax question.

Who should I choose as trustees?

Trustees hold the policy and are responsible for paying the income to the people you have named, so the choice is practical rather than sentimental. They should be people you will easily be able to contact in future, and ideally not also beneficiaries³. They could be family members, friends or perhaps a solicitor².

Think about how long the trust may run. A family income benefit policy pays out over the remaining term, so the trust could be active for decades. Trustees who are easy to reach now may move, change their details or die before the policy pays out, which is why naming more than one and telling them where the documents are kept helps.

A solicitor as trustee brings continuity and record-keeping, but will charge for the work. Family members and friends usually do not, but may need guidance on what the role involves. There is no single right answer, and the decision turns on who will still be contactable and willing when the time comes.

Does a trust keep the payout out of my estate?

Yes, in the usual case. If the policy is written in trust, the payout will usually sit outside your estate for inheritance tax purposes². Providing the life policy is written into trust, the payout will not form part of your estate¹⁶. It also means the payment does not form part of your estate so is not subject to inheritance tax¹⁰.

The threshold matters here. Inheritance tax is charged on estates valued above £325,000⁴. If your estate is below that, the trust still helps with speed and control, but the tax saving may be nil. If your estate is above it, the payout could push you over the threshold without a trust, which is the situation a trust is designed to avoid¹⁷.

Family income benefit is not taxable in itself¹. The tax question is not about the income, it is about whether the payout is counted in your estate. A trust takes it out of that calculation.

Can I change the beneficiaries after the trust is set up?

It depends on the type of trust. You may be able to change the beneficiaries on your trust, depending on the type of trust agreement you have⁷. With a flexible trust you decide who receives any payouts, and you can change the policy in future, such as changing beneficiaries⁷. Changing the terms can cost, and a legal professional is needed⁷.

Other trusts are fixed. With a Controlled Access Account, you cannot change the beneficiaries once the trust has been set up¹¹. With a Family Tree account, once the account is open the beneficiary cannot be changed¹². If flexibility matters to you, the type of trust you choose at the outset is the decision that determines it.

This is why the choice of trust is worth taking seriously before you sign. A trust that suits your circumstances now may not suit them in ten years, and the ability to change beneficiaries is not guaranteed across all types.

Can I put an existing family income benefit policy in trust?

Yes. You can put an existing policy in trust later, but it may involve extra paperwork, and if you need help from a financial adviser or solicitor, there could be a cost². Writing your policy in trust can be done at any time by filling out the insurer's form⁶.

The same limits apply as for a new policy. Once you put a policy in trust, you generally cannot simply change your mind, and depending on the type of trust it may be difficult to change the beneficiaries or take the policy out of the trust later². Putting an existing policy in trust is therefore not a trial run.

If you are unsure whether your policy is already in trust, the insurer can tell you. Many policies are written in trust at the point of sale without the policyholder realising it, and the paperwork will say so.

Where to get help

Free, impartial guidance is available. MoneyHelper offers free guidance on insurance and estate planning, and debt advice charities including StepChange and National Debtline can help if money problems are part of the picture. For legal questions about a trust deed, a solicitor is the appropriate source of advice.

If you are in Scotland, the rules on trust deeds and protected trust deeds differ from the rest of the UK, and you cannot have a trust deed if your income is only from benefits¹⁴. Free help is available from organisations such as OPFS¹⁸.

For the wider picture on how these policies work, see family income benefit explained and writing life insurance in trust. If you are weighing up whether the cover itself is right for you, how much life insurance cover do I need sets out the questions to work through.