In brief
Life assurance written in trust pays out directly to trustees outside your estate and free of inheritance tax, providing immediate cash to pay HMRC without waiting for probate or forcing property sales.
The probate cash-flow crisis
In the UK, inheritance tax must generally be paid to HMRC by the end of the sixth month following death. Crucially, this deadline often arrives before the probate registry grants probate. Because banks freeze accounts until probate is granted, executors frequently find themselves with a large tax liability and no access to the estate’s cash.
How writing life cover in trust works
When a life policy is written in trust, the legal ownership of the policy belongs to your chosen trustees, not your personal estate. When a claim arises, the insurer pays the proceeds directly to your trustees. The payout does not pass through probate and is not subject to 40% inheritance tax.
Immediate liquidity for your executors
With immediate access to funds, your trustees can loan or advance cash to your executors to settle the HMRC bill on time. Your family is spared the distress of taking out expensive executor loans or being forced to sell family heirlooms and property in a depressed market.
The danger of policies without a trust
A life insurance policy taken out without a trust nomination is paid directly into your personal estate, where it is liable for inheritance tax at up to 40% and locked behind probate. Ensuring your policies are written in trust is a simple, high-impact step we look at in every review.
Source: MoneyHelper: Life insurance and trusts