Ending/Varying an Insurance Policy Trust

Trusts Discussion
1

An insurance policy was taken out by two shareholders in a company. The insurance policy was assigned to a Trust, which is a standard template document. The life assured is Shareholder Y.

The Trust is poorly drafted, but essentially says:

  1. If Shareholder Y dies whilst working for the company, then Shareholder X receives the proceeds outright
  2. If Shareholder Y dies having already left the company, then Shareholder Y receives the proceeds.

The admin provisions are very basic.

Shareholders X and Y have fallen out. Shareholder X has left the company. Shareholder Y is still with the company. If Shareholder Y died then the proceeds would pay out to the ex-Shareholder X.

My concerns are that there isn’t an outright beneficial owner so we can’t do an Assignment and also the Trustees don’t have an express power to transfer to a new Trust so they can’t declare the policy to be held on the terms of a new trust for Shareholder Y.

Does anyone have any thoughts on how best to deal with this so that Shareholder X is no longer linked to the Policy and it pays out to Shareholder Y (or family) even if death occurs whilst Shareholder Y still works in the business?

Could the two shareholders agree to end the Trust in favour of Y and then Y assigns to a new trust created by Y?

Laura Willis
MLP Law

2

If X and Y are the only possible beneficiaries then, applying the principle from Saunders v. Vautier (1841), they can agree to vary the terms of the trust.

Alternatively, if X assigns his interest to Y this should result in Y being the only possible beneficiary and his entitlements merge so that he could call for the trustee to transfer the policy to him absolutely.

No mention is made of current the value of the policy, nor if the trust is a discretionary trust or subject to an IIP. Before proceeding with any arrangement, both X and Y will therefore need to obtain their own advice on the tax implications of unwinding the trust.

Paul Saunders