Should Your Life Insurance Be Owned by a Trust in NZ? (2026)

Having a family trust own your life cover can change who controls the policy, who gets the payout, and how it sits against your estate and creditors. Here is how trust ownership works under the Trusts Act 2019, and the downsides.

New Zealanders use trusts more than almost anyone. There are somewhere between 300,000 and 500,000 of them — commonly cited at around 400,000 — against a population of roughly five million ¹. So if you already have a family trust, or you are setting one up, it is a fair question to ask whether your life insurance should sit inside it rather than be owned by you personally.

The short answer is that it depends on what you want the payout to do, and on how your wider affairs are arranged. Trust ownership can change who controls the policy, who receives the money, and whether that money is exposed to your estate, your creditors or a relationship-property claim. It also adds work and obligations that personal ownership does not. This guide walks through both sides so you can have a sensible conversation with your adviser, lawyer and accountant.

TL;DR: A trust can own your life cover so the payout lands in the trust rather than your personal estate — which can help with control, succession and keeping proceeds outside your estate ⁷. But it adds trustee duties and admin under the Trusts Act 2019 ²³, and it is not right for everyone. Whether it suits you depends on your goals and structure, not a rule of thumb.

Why would you put a life policy in a trust?

Personal ownership is the default, and for many people it is perfectly fine. You own the policy, you nominate who gets the money, and on a valid claim the insurer pays out. Putting cover in a trust is a deliberate structuring choice made for specific reasons, usually some combination of the following.

• Keeping the payout outside your personal estate. Proceeds paid to a trust can sit apart from the assets that pass under your will, which can matter for estate planning, blended families and protecting money for particular beneficiaries ⁷.
• Control over how and when money is paid out. A trust can hold and distribute proceeds over time — for example to young children, or a beneficiary who is not ready to manage a large lump sum — rather than handing it all over at once.
• Aligning cover with assets the trust already owns. If the family home, a business interest or an investment property is held in the trust, having the trust own the life cover that protects or funds those assets can keep the structure consistent.
• Continuity and succession. A trust can outlive you, which is useful where cover is part of a long-term plan spanning more than one generation.

None of these are reasons on their own. They are factors to weigh against the added cost and obligations further down this guide, and against simply naming beneficiaries on a personally owned policy, which achieves a lot of the "right person, quickly" goal without a trust at all. We cover that alternative in policy ownership and beneficiaries.

How trust ownership affects who controls and receives the payout

This is the core of it. Ownership and beneficiary nomination decide who controls a policy while you are alive and where the money goes when a claim is paid — and trust ownership changes both.

With a personally owned policy, you are the policy owner. You can change the cover, cancel it, or update the nominated beneficiaries. On death, the proceeds are paid according to your nomination or, if there is none, into your estate to be distributed under your will.

With a trust-owned policy, the trust is the legal owner. The trustees — who may include you, but also others — control the policy collectively, and they are bound by the trust deed and by law to act for the beneficiaries. On a claim, the money is paid to the trust, then distributed by the trustees in line with the deed. You give up some individual control in exchange for a structure that can keep the proceeds separate and managed over time.

Figure: Personal ownership vs trust ownership of a life policy. Source: general NZ trust and insurance practice; not advice for your situation. Whether a claim is paid depends on the policy terms, conditions, exclusions and your disclosure — always read the policy wording.

The table shows the trade-off in one view. Trust ownership tends to win on separation, control and protection, and cost more in money and effort. Personal ownership is simpler and cheaper and, for many households, the right call — especially once beneficiaries are nominated properly.

Trust-owned cover and creditor or relationship-property protection

One of the main reasons people consider trust ownership is to keep a payout away from claims that might otherwise reach it — creditors, or a relationship-property dispute.

The general legal position is that assets held in a validly constituted trust are not part of an individual's personal property ⁷. So life insurance proceeds paid to a trust can sit outside the deceased's personal estate, which affects how exposed they are to those claims. For a business owner with personal guarantees, or a family wanting to ring-fence money for children from an earlier relationship, that separation can be the point of the exercise.

Two cautions matter here, and they matter a lot.

First, the protection depends on the trust being validly constituted and properly run. A trust set up to defeat a known creditor, or one administered so loosely that it looks like an alter ego of the person who created it, can be challenged. The separation is only as good as the substance behind it.

Second, this is legal territory, not insurance territory. Smiths Financial does not provide legal advice on trusts, creditor protection or relationship property. This is general information only — whether a trust actually achieves the protection you are after is a question for your lawyer, and the answer depends on your circumstances, how the trust is run, and the timing of when assets went in.

What the Trusts Act 2019 changed for trustees holding policies

If a trust is going to own your life cover, the trustees take on real legal duties. The governing statute is the Trusts Act 2019, which came fully into force on 30 January 2021 after an 18-month transition and restated and reformed New Zealand trust law ². It applies to all express trusts governed by NZ law, so any trust holding a life policy is caught by it.

A few features of the Act are worth knowing before you ask a trust to own your cover.

• Five mandatory trustee duties that cannot be modified or excluded: knowing the terms of the trust, acting in accordance with those terms, acting honestly and in good faith, acting for the benefit of beneficiaries or the permitted purpose, and exercising powers for a proper purpose ³. These bind every trustee, including any holding a policy.
• Ten default trustee duties — such as care and skill, investing prudently, avoiding conflicts of interest, acting impartially, not profiting, and acting unanimously — which apply unless the trust deed modifies or excludes them ⁴. These shape the day-to-day admin of a trust-owned policy.
• A presumption to disclose "basic trust information" to beneficiaries — that they are a beneficiary, the trustees' contact details, notice of trustee changes, and the right to request the trust terms ⁵. This increased disclosure can mean beneficiaries are told more than under the old law, which is something to think through for some families.
• A longer maximum trust life. The Act abolished the old rule against perpetuities and extended the maximum duration of a trust from 80 to 125 years ⁶, which matters where cover is part of a multi-generational plan.

The practical upshot is that trustees of a policy-owning trust have to keep proper records, make decisions together, manage conflicts, and be ready to give beneficiaries information. That is the admin price of the structure.

The downsides and admin of trust-owned cover

Trust ownership is not free, and it is not for everyone. Set against the benefits, here are the costs to weigh honestly.

• Set-up and running cost. A trust generally involves legal fees to establish and ongoing costs to administer — record-keeping, meetings or resolutions, and professional fees where you use a lawyer or accountant.
• Loss of individual control. Decisions about the policy are the trustees' to make collectively under the deed, not yours alone. That is the point of the structure, but it is still a real shift from owning the policy yourself.
• Compliance obligations. The Trusts Act 2019 duties and the disclosure presumption mean ongoing work and, occasionally, conversations with beneficiaries you might not otherwise have had ³⁴⁵.
• Tax context. A life insurance payout to a trust is generally not taxable income. But the trust's wider tax position has moved — the trustee tax rate, which applies to income retained in a trust, rose to 39% from the 2024–25 income year, up from 33% ⁸. If the trust holds other income-producing assets, that is relevant background for your accountant, even though it does not tax the life payout itself.
• It can be overkill. For many households, nominating beneficiaries on a personally owned policy achieves the practical goal of getting money to the right people quickly, without a trust at all.

The honest summary: a trust adds control and separation, and it adds cost, obligations and complexity. Whether the trade is worth it depends entirely on your situation.

How this works alongside business and estate planning

Trust-owned life cover rarely stands alone. It usually exists because a trust is already doing wider work — holding the family home, an investment property, or a business interest — and the cover is structured to fit that.

In estate planning, keeping proceeds outside the personal estate ⁷ can help direct money to particular beneficiaries, support a blended family, or hold funds for children until they are older. The trust becomes the vehicle that receives and manages the payout rather than the will.

In business planning, the picture connects to ownership and succession. Where life cover funds a buy-sell or shareholder agreement, who owns the policy — the individual, the company, or a trust — is a structuring decision with tax, control and continuity consequences. We work through that in shareholder protection and buy-sell funding. The right structure there is rarely obvious and almost always benefits from the adviser, lawyer and accountant being in the same conversation.

The common thread is that ownership structure should follow the plan, not the other way around. Deciding a trust should own the cover before you are clear on what the cover is for tends to create complexity without a matching benefit.

How an adviser coordinates with your lawyer and accountant

Putting life cover in a trust sits at the intersection of three professions, and getting it right usually means all three are aligned. Each has a different job.

• The lawyer owns the trust itself — whether the deed allows the trust to own a policy, how the trustee duties apply, and whether the structure actually achieves the protection you are after. Trust law, creditor protection and relationship property are legal questions, and Smiths Financial does not advise on them.
• The accountant owns the tax and structuring view — how the trust-owned policy interacts with the trust's wider tax position, including the 39% trustee rate on retained income ⁸, and with any business structure.
• The adviser owns the cover — sizing it to the need, comparing it across insurers, and setting up ownership, premium-payer and beneficiary arrangements so the policy is held in a way that matches the trust and the plan. We work across a panel of selected NZ insurers, including Partners Life, AIA, Fidelity Life, Asteron Life and Chubb Life, and each insurer's product disclosure statement is where the precise terms live. Not every provider in the market is shown.

How we are paid: we are generally paid a commission by the insurer when you take out a policy through us, which does not change the premium you pay; any conflicts are managed in line with our duty to prioritise your interests, and full details are in our disclosure. Our job in a trust structure is not to sell the largest policy — it is to make sure the cover is the right size and is owned in a way that fits what your lawyer and accountant have built. For more on that sizing-and-structuring work, see how an adviser structures life cover.

Frequently asked questions

Should my life insurance be owned by my family trust in NZ?

It depends on what you want the payout to do and how your affairs are structured. Trust ownership can keep proceeds outside your personal estate and give more control over how money is paid out ⁷, but it adds cost and trustee obligations under the Trusts Act 2019 ³⁴. For many households, nominating beneficiaries on a personally owned policy is simpler and enough. It is a decision to work through with your adviser and lawyer.

Does a trust-owned life policy avoid my estate?

Generally, proceeds paid to a validly constituted trust sit outside your personal estate rather than passing under your will ⁷. That can help with estate planning and protecting money for particular beneficiaries. Whether it works depends on the trust being properly set up and run, which is a legal question for your lawyer.

What duties do trustees have if a trust owns my insurance?

The Trusts Act 2019 sets five mandatory duties that cannot be excluded and ten default duties that apply unless the deed modifies them ³⁴, plus a presumption to give beneficiaries basic trust information ⁵. In practice that means keeping records, making decisions together, managing conflicts and being ready to inform beneficiaries — ongoing work the trustees take on.

Is a life insurance payout to a trust taxed?

A life insurance payout itself is generally not taxable income. But if the trust retains other income, the trustee tax rate rose to 39% from the 2024–25 income year, up from 33% ⁸. That does not tax the life payout, but it is relevant context for your accountant where the trust holds other assets. Tax settings can change — check current rules and take advice.

Do I need a trust to make sure the right person gets the payout?

Not necessarily. Nominating beneficiaries on a personally owned policy can get money to the right people quickly without a trust. A trust adds value where you want money held and managed over time, kept separate from your estate, or aligned with assets the trust already owns. Our policy ownership and beneficiaries guide compares the options.

Can Smiths Financial set up the trust for me?

No. Smiths Financial does not provide legal advice on trusts — setting up and running a trust is your lawyer's role. What we do is advise on the cover itself and coordinate with your lawyer and accountant so the policy is owned and structured in a way that fits the trust and your wider plan.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances. Smiths Financial does not provide legal advice on trusts, creditor protection or relationship property, or accounting and tax advice — please consult an appropriately authorised professional. Whether a claim is paid depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy, and on your disclosure — always read the policy wording. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority and is a member of the Financial Dispute Resolution Service (FDRS). Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 26 May 2025.