How is a Group Life Insurance trust structured and why does it matter?

If you’ve arranged Group Life Insurance for your employees, or are thinking of offering it, there’s a very good chance you’ve come across the term “discretionary trust”.

Now, it may sound complicated, but actually it’s relatively straightforward. Honest!

This article explains what a trust is, why it matters, and what it means in practice for you and your employees’ families.

This article is general guidance only and does not constitute financial, legal or tax advice. Tax rules and policy terms can change. Always consult a qualified adviser for guidance specific to your situation.

Why does Group Life Insurance need a trust?

Let’s look at what happens when you don’t have a trust in place…

When someone dies, their estate (i.e. physical assets and financial holdings) goes through a legal process called probate before the money is given out to beneficiaries.

Probate can take six months or considerably longer, and the estate may be subject to inheritance tax at 40% on assets above the nil-rate band (this currently stands at £325,000 – as of June 2026).

If Group Life Insurance benefits were paid directly into a deceased employee’s estate, the family could face a long wait at a time when they really need financial support.

But there’s another way: the discretionary trust!

A discretionary trust by places the policy under a trust where the benefit can be paid directly to the people who need it without going through probate. In most cases, it will be free of inheritance tax – as long as the trust is correctly structured.

Important note on inheritance tax from April 2027: From 6 April 2027, most unused pension funds and pension death benefits are expected to fall within the value of a person’s estate for inheritance tax purposes. HMRC has confirmed that death in service benefits payable from registered pension schemes will remain outside inheritance tax. The treatment of different group life arrangements can be complex, so employers should review their scheme structure with their broker and a qualified tax adviser ahead of that date. See HMRC’s guidance on inherited pension funds and death benefits for the latest position.

What is a discretionary trust?

It helps if we first know what a trust is. A trust is a legal arrangement in which assets are held by one party (the trustees) for the benefit of others (the beneficiaries). A discretionary trust is a particular type of trust where the trustees have discretion over who receives the assets and in what proportions, rather than the distribution being fixed in advance.

In a typical Group Life Insurance arrangement the employer or its directors are usually the trustee. The insurer pays the death benefit to the trustees, who then distribute it to the appropriate beneficiaries. See our full guide to Group Life Insurance to learn more about how a Group Life policy works.

The master trust: what employers often miss

Charlie Cousins, Founding Director at Hooray: One of the most common mistakes I see when employers set up Group Life Insurance is not completing the master trust forms. Most insurers offer a free master trust as part of the arrangement, but because it is a separate form from the policy application, it often gets overlooked. Employers complete the application and think they are done. Then when someone needs to make a claim, there is no trust in place, which causes delays and real confusion at the worst possible moment for a family. Always make sure your broker confirms that both the policy and the master trust documentation have been completed before the scheme goes live.

What is an expression of wishes?

When the trust is discretionary, the trustees technically have the final say on who receives the money. Which doesn’t quite sound right does it?

However, there is a remedy. Employees can complete an expression of wishes form (sometimes called a nomination of benefits form) to indicate who they would like to benefit.

This document is not legally binding but carries significant weight and is followed in the vast majority of cases. Employees should update it whenever personal circumstances change: following a marriage, divorce, the birth of a child, or the death of a previously nominated beneficiary.

A frequently overlooked issue: employees complete an expression of wishes when they join and never update it. An outdated form naming an ex-partner or a deceased parent creates real difficulty for trustees. Good benefits communication, which your broker should support, helps prevent this.

Trustee responsibilities

As mentioned, the employer will typically be one of the trustees. Your responsibilities include:

• Maintaining the trust deed and keeping records of trust decisions
• Collecting and storing expressions of wishes securely
• Making decisions about benefit distribution when a claim arises
• Keeping the trust compliant with current legislation
• Updating trust documentation if the policy or scheme structure changes

For most SMEs, these responsibilities really shouldn’t take up much time and a good broker will guide you through the technicalities and help you in the event of a claim.

Types of trust used for group life insurance

Excepted Group Life Policy trust

This is the most widely used structure for employer Group Life schemes. An excepted Group Life Policy (EGLP) sits outside the registered pension scheme rules.

Since the abolition of the pension lifetime allowance from 6 April 2024 this distinction has less immediate tax significance for most employees, but the EGLP structure remains commonly used and continues to offer important benefits around trust structure and benefit payment.

Your broker and a qualified tax adviser can confirm the most appropriate arrangement for your workforce.

Registered Group Life scheme

A registered group life scheme operates under HMRC’s registered pension scheme rules. It is simpler to administer in some ways and suitable for many employers.

The good news is that HMRC has confirmed that death in service benefits payable from registered pension schemes will remain outside inheritance tax under the proposed April 2027 changes. Your broker will advise on which structure is appropriate for your circumstances.

What happens when a claim is made?

When an employee dies, the employer (as trustee) notifies the insurer and provides the required documentation, typically a death certificate and proof of employment. The insurer pays the benefit to the trust. The trustees then distribute it to the beneficiaries in line with the expression of wishes and their own judgement.

At Hooray, we support clients through every stage of a claim. This is a sensitive time and we aim to make the administrative side as straightforward as possible for everyone involved.

Does the trust need regular review?

Yes. The trust deed should be reviewed when there is a significant change to the scheme, such as switching insurer or changing the benefit structure, and when there are changes in relevant legislation. Your broker should flag these review points as part of their ongoing service.

Frequently asked questions

Does Group Life Insurance need a trust?

Most employer Group Life schemes are written under a discretionary trust so that the death benefit can be paid quickly and outside the deceased’s estate, avoiding delays through probate and, in most cases, inheritance tax. It is not a legal requirement in all circumstances, but it is strongly advisable and is standard practice across the market.

Is an expression of wishes legally binding?

No. An expression of wishes is not legally binding. The trustees retain discretion over who receives the benefit and in what proportions. However, expressions of wishes carry significant weight and are followed in the vast majority of cases, provided the nominated beneficiaries are appropriate.

Who are the trustees of a Group Life scheme?

In most small and medium-sized employer schemes, the employer or its directors act as trustees. Some employers appoint additional independent trustees. The insurer typically provides standard trust documentation to keep the administration manageable.

How Hooray Health & Protection can help

At Hooray, we guide you through the process of setting up a trust. We’ll also make sure your employees understand the expression of wishes form, and support you at every renewal and claim.

If you are considering Group Life Insurance for your business, or want to check that your existing scheme is correctly structured, speak to our team.

Related reading: What is death in service insurance? | Group life insurance FAQs | Employee benefits for small businesses