Just 14% of life insurance holders use trusts to dodge inheritance tax, Which? finds

Survey finds low take-up of trusts

Only 14% of Which? members who hold life insurance have put their policy in trust, according to a Which? Connect panel survey of 2,111 members carried out in September and October 2026. The research also found that 78% of Which? members do not have a life insurance policy at all.

Putting a policy in trust means appointing trustees, such as family members, friends or a solicitor, to hold the legal ownership of the policy and manage the eventual payout for named beneficiaries. Because the policy no longer counts as part of the policyholder’s estate, the payout falls outside inheritance tax (IHT) calculations, meaning beneficiaries receive the full sum and can use it to settle an IHT bill more quickly.

Among those Which? members who had taken this step, 45% said their main reason was to ensure the payout would not be counted as part of their estate for inheritance tax purposes.

Six pitfalls identified

Which? set out six mistakes people risk making when arranging life insurance in trust. These include assuming any policy type will work, when in fact a whole-of-life policy is generally needed for IHT cover since term policies only pay out if death occurs within a set term of five to 70 years. Choosing between a bare trust, which locks in beneficiaries once set, and a discretionary trust, which allows more flexibility, was flagged as another area where people can get it wrong.

The research also warned that unmarried partners are not automatically entitled to a payout under intestacy rules, so naming a partner as a trust beneficiary, or taking out a joint life insurance policy, can matter for unmarried couples.

Many never review their arrangements

The survey found that 39% of members with a policy in trust have never reviewed it, despite life circumstances such as marriage, divorce, having children or becoming a grandparent potentially changing who should benefit. Which? also highlighted the importance of choosing reliable trustees, noting that payouts can stall if trustees become unreachable, fall out, or face conflicts of interest, particularly under discretionary trusts where trustees decide how money is distributed.

Finally, the research pointed to the risks of not seeking professional advice. A policy can be placed in trust when first taken out or at any later date, and providers can often help with the initial setup, but Which? said transferring an existing policy into trust can carry tax implications that need checking in advance.

What happens next

Which? has published its findings as a guide for people considering or reviewing a trust arrangement around life insurance, alongside its wider research into inheritance tax planning. The survey underlines that take-up of trusts remains low even among those who already hold life insurance, with the majority of Which? members overall not covered by any policy. Anyone with an existing trust arrangement is encouraged by the findings to check whether their chosen beneficiaries, trustees and trust type still reflect their current circumstances.