The Simple Step That Can Save Your Family 40% Tax
Most people don't realise that a life insurance payout can be subject to a 40% Inheritance Tax bill. A simple legal instruction, called a trust, can prevent this.
"Policy in Trust" IHT Saver
Life Insurance Payout Amount
Without a Trust
Payout Amount
£250,000
40% IHT Bill*
-
Your Family Receives
WITH a Trust
Payout Amount
£250,000
40% IHT Bill
- £0
Your Family Receives
£250,000
Total Amount Saved for Your Family:
Setting up a trust is simple and our advisers can help you do it for free.
Ask an Adviser About TrustsWhy is a Trust So Important?
1. It Avoids a 40% Inheritance Tax Bill
Without a trust, your life insurance payout is added to your estate. If your total estate value is over the tax-free threshold (£325,000 as of August 2025), the payout could be taxed at 40%. By placing the policy in trust, it falls outside your estate, ensuring the full amount goes to your beneficiaries, tax-free.
2. It Skips the Lengthy Probate Process
Without a trust, your family may have to wait for probate (the legal process of validating a will), which can take 6-12 months or more, before they can access the money. A trust bypasses probate, allowing the trustees to claim the money in a matter of weeks, providing crucial financial support when it's needed most.
Disclaimer: This calculator is for informational and illustrative purposes only and does not constitute financial, legal, or tax advice. The figures shown are based on the Inheritance Tax rate of 40% as of August 2025 and may be subject to change. Your personal circumstances, including the total value of your estate, will affect your actual IHT liability. We strongly recommend speaking with a qualified financial adviser to understand how a trust could benefit your specific situation.
Policy in trust calculator guide for UK families
WeCovr's policy in trust saver shows how placing life insurance in trust can protect beneficiaries, with FCA-authorised guidance and 900,000+ policies issued across protection products. It highlights how a trust can reduce inheritance tax exposure on payouts.
What this policy in trust calculator shows
The calculator compares a life insurance payout with and without a trust, using a 40% inheritance tax rate when the estate exceeds allowances. It is a simplified illustration to show why trusts can matter.
It does not replace estate planning advice, and real outcomes depend on total estate value, allowances, and how the policy is written.
Assumes a 40% inheritance tax rate on the relevant portion.
Illustrates the potential benefit of writing a policy in trust.
Designed for awareness, not legal advice.
How trusts can protect payouts
A trust can keep the payout outside the estate, reducing the inheritance tax bill and speeding up access for beneficiaries. Many insurers offer simple trust forms at no extra cost.
Why WeCovr supports trust planning
WeCovr provides FCA-authorised guidance and high customer satisfaction ratings. We also offer complimentary access to the CalorieHero AI calorie tracking app and discounts when customers take PMI or Life insurance.
Data sources and guidance references
This guide references HMRC inheritance tax guidance and FCA information on protection policies.
With trust vs without trust
| Scenario | IHT exposure | Access speed | Best for |
|---|---|---|---|
| Policy in trust | Reduced | Faster | Protecting beneficiaries |
| Policy in estate | Higher | Slower | No trust set up |
| Other estate planning | Varies | Varies | Complex estates |
Related WeCovr resources
FAQs
What does it mean to put a life insurance policy in trust?
It means the payout is held for beneficiaries outside the estate, which can reduce inheritance tax and speed up access.
Is a trust expensive to set up?
Most insurers provide simple trust forms at no extra cost, but you should consider legal advice for complex estates.
Does a trust always avoid inheritance tax?
Not always. It depends on how the policy is structured and the overall estate, but trusts often reduce exposure.
Should I speak to an adviser about trusts?
Yes. Trusts have legal and tax implications, so professional guidance is recommended.