Life policy creditor protection in the UK: what a trust protects, and from when

Not while you own it. A policy in your name is part of your bankruptcy estate and vests in the trustee in bankruptcy under the Insolvency Act 1986 s.306. Protection comes from a trust: property held on trust for other people is excluded from the estate by s.283(3)(a), provided the gift into the trust cannot be unwound.

More than five years before the bankruptcy petition or application takes it outside the rules on transactions at an undervalue in ss.339 and 341. Between two and five years, the gift is caught only if you were insolvent then or became so, but that is presumed where the trustees are associates, as family trustees usually are. At any time, a transfer made to put assets beyond a creditor's reach can be undone under s.423.

If you own it, it vests in the trustee in bankruptcy, who can keep, sell or surrender it and receives any payments that would have gone to you. If trustees hold it for others, the Official Receiver checks that the trust was not an attempt to put assets out of creditors' reach, and once satisfied has no further interest in the policy.

Yes, within its limits. Under the 1882 Act s.11, a policy on your own life for your spouse or children creates a trust, and the money is not part of your estate or subject to your debts. If creditors prove the policy was effected and the premiums paid with intent to defraud them, they are entitled to a sum equal to the premiums out of the policy money. Civil partners are covered in England and Wales by the Civil Partnership Act 2004 s.70; Scotland has its own 1880 Act.

Often, yes. The court considers all property and financial resources each party has or is likely to have (Matrimonial Causes Act 1973 s.25), can vary a nuptial settlement for the benefit of the spouses and children (s.24(1)(c)), and can set aside a disposition made to defeat the claim (s.37). A disposition within three years before the application is presumed to have had that intention.

The section itself sets none. The claimant must prove that the transfer was made for the purpose of putting assets beyond the reach of someone making or likely to make a claim, or otherwise prejudicing that person. A trust made long before any claim was in view, for documented family reasons, is much harder to attack than one made under pressure.

No. Rights under an approved pension arrangement are excluded from the bankrupt's estate by the Welfare Reform and Pensions Act 1999 s.11. There is no equivalent statutory exclusion for a life policy or an offshore bond, which is protected only if it is held in a trust that stands.

Not by the FSCS, which covers only insurers regulated by the Prudential Regulation Authority (a policy written through a PRA-authorised UK branch may be covered, so check the issuing entity). Protection depends on the insurer's home jurisdiction: Guernsey requires at least 90% of policyholder liabilities to be held in trust, the Isle of Man scheme is generally described as paying up to 90% of the value of a protected contract, Ireland's compensation fund excludes life policies, and Luxembourg relies on custodian segregation and a preferential claim for policyholders.