Life Assurance Trusts for International Families

Placing a life assurance policy in trust is one of the most consistently recommended steps in protection planning. For an internationally mobile family — one whose members live in different countries, hold assets across multiple jurisdictions, and may have legal and tax obligations to several states — a well-structured life assurance trust is not simply a housekeeping step. It is a central element of the family's estate architecture.

This guide explains how life assurance trusts work, why they are particularly important for international families, and what the key structural decisions involve.

Why Place a Life Assurance Policy in Trust?

Probate Avoidance

When a life assurance policy is owned directly by the policyholder, the death benefit forms part of the estate on death. It must pass through the probate process before it can be distributed to beneficiaries. Probate in a single country is already slow and can take many months. In an internationally mobile estate — where a grant of probate in one country may need to be recognised, re-sealed, or replicated in another — the delay can stretch to years.

A policy held in trust passes outside the estate. The proceeds go directly to the trustees and then to beneficiaries, without probate in any jurisdiction. For a family depending on the death benefit as immediate liquidity, this difference is not academic.

Potential Inheritance Tax Efficiency

In many jurisdictions, assets held in trust at the time of death are not included in the taxable estate, provided the trust was properly established and the settlor (the person who created the trust) survived for a specified period after the transfer.

In the United Kingdom, for example, a life assurance policy written in trust is typically outside the settlor's estate for inheritance tax purposes from the outset — there is no seven-year survival requirement for most life assurance policy trusts that are established at the time the policy is taken out.

For internationally mobile families, the inheritance tax picture is more complex. Multiple countries may assert a taxable interest in the estate depending on domicile, habitual residence, and the location of assets. The interaction of these rules — and the extent to which any double taxation treaty mitigates them — requires specific legal advice in each relevant jurisdiction. This guide sets out the structural options; it does not constitute tax advice.

Control Over Distribution

A trust allows the settlor to specify — within the bounds of trust law — who benefits, when, and in what circumstances. This is particularly valuable where:

• Beneficiaries include minor children (who cannot legally receive large sums directly in most jurisdictions)
• The family has complex structures (children from different relationships, dependants with different needs)
• The settlor wishes to impose conditions (e.g., attaining a certain age, completing education)
• There is concern about a beneficiary's ability to manage a sudden large sum

A discretionary trust gives the trustees full flexibility to distribute among a defined class of beneficiaries as they see fit, taking account of prevailing circumstances at the time of distribution.

Certainty of Destination

Without a trust, a life assurance policy's proceeds may be distributed under intestacy rules (if there is no valid will), under a will that was made without full consideration of all relevant jurisdictions, or in ways that are challenged by competing legal claims. A trust removes the proceeds from these uncertainties and places them in the hands of trustees who are legally obliged to follow the trust deed.

Types of Life Assurance Trust

Bare (Absolute) Trust

The simplest form. The trustees hold the policy for a named beneficiary who is absolutely entitled to the proceeds from the outset. The beneficiary cannot be changed once the trust is established. This is suitable where the settlor has a fixed and certain intention about who the beneficiary should be.

A bare trust is not appropriate for internationally mobile families with evolving circumstances — if the named beneficiary predeceases the policyholder, or the family situation changes, there is no flexibility to redirect.

Discretionary Trust

The trustees hold the policy for the benefit of a class of potential beneficiaries (e.g., spouse, children, grandchildren, and such other persons as the trustees may designate). The trustees decide how to distribute, in what proportions, and when.

This flexibility makes discretionary trusts the most commonly used structure for internationally mobile families. However, in some jurisdictions a discretionary trust may be treated differently from a bare trust for tax purposes — specific advice is required.

Split Trust

Designed to separate the lump sum death benefit (placed in trust, outside the estate) from other policy benefits such as a critical illness benefit or a terminal illness benefit (retained by the policyholder). The policyholder accesses any living benefits directly, whilst the death benefit is protected in trust. These trusts are a UK product innovation; international equivalents vary.

International Discretionary Trust

For internationally mobile families, a specifically designed international discretionary trust — typically constituted under the law of a recognised offshore jurisdiction such as the Isle of Man, Guernsey, Jersey, the Cayman Islands, or Bermuda — provides the highest degree of flexibility and portability. The trust deed can be drafted to accommodate beneficiaries and assets in multiple countries.

International trusts are more complex and more expensive to establish than simple domestic trusts, but for families with material assets across multiple jurisdictions, the additional structure is generally justified.

Jurisdiction Selection for International Trusts

The choice of trust jurisdiction affects:

• The law governing the trust deed
• The regulatory and supervisory framework
• Whether the jurisdiction is recognised and respected in the countries where beneficiaries live
• The availability and experience of professional trustees
• The tax treatment of the trust in each country where beneficiaries reside

Leading trust jurisdictions for international families include:

Isle of Man. Strong regulatory framework, established life assurance industry, Trustee Act 2001 governs trust administration. Widely recognised internationally.

Jersey and Guernsey. Sophisticated trust law, large professional trustee industry, recognised globally. Jersey's Trusts (Jersey) Law 1984 (as amended) is one of the most developed in the world.

Cayman Islands. Commonly used for high-net-worth structures. STAR trusts (Special Trusts Alternative Regime) offer enhanced flexibility.

Bermuda. Established jurisdiction, Bermuda Trusts (Special Provisions) Act 1989 provides statutory force. Commonly used alongside Bermuda-domiciled life assurance policies.

Cyprus. An EU member state with an established trust framework, Cyprus International Trusts Law (as amended in 2012) allows internationally mobile individuals with Cyprus connections to establish trusts efficiently.

The trust jurisdiction should be selected in conjunction with the life assurance policy jurisdiction and the jurisdictions where beneficiaries reside. These do not need to be the same country, but the interactions should be analysed carefully.

Settlor Considerations

The person who creates the trust and transfers the policy into it is the settlor. Key points:

The settlor should not benefit. If the settlor can benefit from the trust (other than in specific carve-out arrangements), many jurisdictions will treat the trust assets as remaining within the settlor's estate for tax purposes. Life assurance trusts are typically drafted to exclude the settlor as a beneficiary.

Retained power caution. If the settlor retains extensive powers to direct or revoke the trust, the trust may be treated as a sham or the assets may be attributed back to the settlor's estate. The extent to which powers can be retained varies by jurisdiction.

Residence and long-term UK residence. For UK inheritance tax purposes, the domicile-based test was replaced from 6 April 2025 by a residence-based regime: an individual is treated as a "long-term UK resident" (and so within the scope of UK IHT on worldwide assets) once they have been UK-resident for at least 10 of the previous 20 tax years. A settlor's residence history at the date of the trust's creation — and the position of any assets settled — affects whether the trust successfully removes the assets from the UK taxable estate. This is particularly complex for individuals who have lived in the UK, even if they are not currently UK-based. (The former concepts of domicile and "deemed domicile" no longer determine UK IHT exposure, though they may still be relevant in other jurisdictions.)

Trustees: Choosing and Managing

The trustees are the legal owners of the policy. They must act in accordance with the trust deed and trust law. Key considerations:

Professional versus family trustees. For internationally mobile families, using a professional trust company as at least one trustee is strongly advisable. Professional trustees understand their legal duties, maintain proper records, and have continuity — they will not predecease the settlor or move countries.

Corporate trustee. A trust company acting as trustee provides corporate continuity. It does not die, emigrate, or lose capacity.

Trustee protector. Some international trust structures appoint a protector — often a trusted individual or professional — who has certain reserved powers (such as the ability to replace trustees) but does not directly administer the trust. This provides a check on the trustees' conduct.

Trustee tax obligations. Trustees may have tax reporting obligations in the country where they are resident. In some jurisdictions, the existence of a trust with offshore trustees may need to be reported by beneficiaries. Tax rules in this area continue to evolve.

Making a Claim on a Trusted Policy

When the policyholder dies, the claim process for a trusted policy differs from a personal policy:

1. The trustees notify the insurer and provide a certified copy of the death certificate and trust deed
2. The insurer pays the death benefit directly to the trustees (not to the estate)
3. The trustees administer the trust fund in accordance with the deed — distributing to beneficiaries, managing any discretion involved, and keeping proper records
4. In jurisdictions with mandatory reporting, the trust distribution may need to be reported to tax authorities by the trustees and/or beneficiaries

The process is generally faster than probate and can often be completed within a few weeks of providing the required documentation.

Regular Review of the Trust Structure

Life assurance trusts should not be established and then forgotten. Events that require a review include:

• Any move by the settlor, trustees, or beneficiaries to a new country
• Birth of new children or grandchildren who might be added to the beneficiary class
• Death of a beneficiary or trustee
• Marriage or divorce of the settlor or a beneficiary
• Significant changes in the estate's value or composition
• Changes in trust or inheritance tax law in any relevant jurisdiction
• Concerns about the suitability or conduct of a trustee

A review at least every three to five years, and promptly on any of the above events, is advisable.

How Global Investments Can Help

Global Investments works with internationally mobile families across major markets worldwide to structure life assurance policies within appropriate trust frameworks. Our advisers have access to legal and trust specialists in key jurisdictions including Isle of Man, Guernsey, Cyprus, and the UAE, and can coordinate the legal, tax, and life assurance elements of a cross-border trust arrangement.

We help clients understand the interaction between trust structures and the inheritance tax rules in each country they have connections with, and ensure that the trust documentation is adequate for claims purposes in the jurisdictions where beneficiaries are likely to reside.

This guide is for information only and does not constitute legal or tax advice. Trust structures must be established with the assistance of a qualified trust lawyer. Tax treatment depends on the law of each relevant jurisdiction and your personal circumstances. Seek regulated financial and legal advice before establishing any trust.