The proposed regulation of funeral plan trusts from July 2022 continues to intrigue me. I am advising several funeral plan providers on how the trusts underpinning their plans will need to be amended and the FCA have published a further consultation (Pre-paid funeral plan providers and the Financial Services Compensation Scheme - GOV.UK) which includes a proposal to legislate “to allow the [Financial Services Compensation Scheme] to modify the obligations of the trust deeds” used by a failed regulated funeral plan provider.
So I can now add to my concerns about who the beneficiaries of a funeral plan trust actually are, giving a “scheme” the power to amend trusts.
Does anyone know of other circumstances where a trust can be amended other than by the courts or under the terms of the trust document?
The consultation is open until 3 September so there is still time to object (hollow laughter).
The issue is clearly seen simply as a consumer matter and the Government has no qualms about wholesale statutory intervention in consumer rights and obligations.
Their policy seems to be about ensuring that any trust wrapper around a contract or insurance policy is ultimately enforceable by the FCA, to fund compensation from the trust assets if need be, where the trust beneficiaries cannot get at them due to a combination of drafting and circumstances. The FCA’s current practice of taking an assignment of their rights could be defeated where such “rights” were not amenable (e.g. are discretionary).
Draft clauses might have been useful but to the Government this would just be boring. They may emerge.The impact assessment with the SI of January 2021 in customary cavalier fashion just notes that trustees may be impacted and passes the buck to the FCA to work it all out later (Borissian big picture strategy).
Advisers are familiar with the pros and cons of standard insurance company trust drafts for wrappers but the quality of those offered with funeral plans may have a poorer pedigree. At least one vendor offers to be the sole trustee! The Government is not proposing to mark the drafter’s homework overall or prescribe the choice of trustee, although both may prove to be obstacles to effective remedies for any beneficiary and thus in default the FCA.
Statutes changing trusts or estate law do not normally directly affect per se subsisting rights under existing trusts, though they may indirectly do so by creating doubt about documentary interpretation e.g ss. 31 and 32 TA 1925 after September 2014, legitimacy or other modern worldly arrival mode of beneficiaries as “children”, or whether parties to same-sex marriages are “spouses”. We can only hope that this trivial danger is not overlooked (more derision off).
I have now read the FCA Condoc 21/20 of 5 july 2021, especially paras 4.15-21. It consults as follows, on the assumption the Government will enact its own proposals (!!!), acknowledging in para 1.19 that trustees and trusts will be affected:
“4.18
Acting under the powers provided by this proposed legislation, we propose to introduce rules in COMP 7.7 that would allow the FSCS, following securing continuity of funeral plan contracts or payment of compensation, to make a determination that:
• varies existing rights or obligations under or in respect of the trust or contract of insurance;
• creates new rights under the trust or contract of insurance in favour of, or obligations by the trustees or insurer to, the FSCS;
• enables the FSCS to claim and take legal or any other proceedings or steps in the United Kingdom or elsewhere to enforce any such rights held by or obligations owed to the FSCS in its own name against the trustees, the insurer and/or any third party”
All a bit vague yet for my liking. In contrast FCA Policy Statement PS 21/8 of 5 July 2021 has a lot of detailed proposals, and draft rule changes, affecting regulated firms as plan providers and the plans but no proposals to regulate policy trustees as such themselves or trust wordings. One hopes failure to deal properly with information about the trust aspects of a plan would constitute a code of conduct breach.
The more I think about this the more perplexed I become. Is the FSCS going to be given in effect the power to add itself as a beneficiary to a trust underpinning a pre-paid funeral plan and direct the trustees to pay out to it? I am not exactly clear what the FSCS is but it appears to be an independent body and have legal personality.
I am interested in whether there is a precedent for this. I can’t think of one. I am working with STEP on a response.
As the FCA has already consulted on those aspects within their traditional jurisdiction, and then come forward with clear and detailed amendments, I assume eventually that their latest consultation which includes these trust issues will eventually go the same way. At present we have no draft clauses on what the Government proposes, so the FCA cannot yet offer their own.
My understanding is that where there is a trust wrapper around a funeral plan some legal entity (FCA or FSCS) will be given enforceable rights against the trust fund, over and above what a form of mere subrogation to any beneficiary’s interest might afford, so that awards under the compensation scheme will not be thwarted just by lack of effective legal access for beneficiaries. Thwarting by insolvency or breach of trust or plan-permitted extraction may not be covered or may leave the entity in no better position.
I doubt this involves adding whoever it is as a beneficiary. I suspect they will be vested with a sui generis statutory right exercisable in prescribed circumstances. And that the other actionable rights of beneficiaries against trustees and of trustees against plan providers will be unaffected, so subject to insolvency hazard, save that actual recovery of compensation will presumably obviate double counting. The rights, if any, of someone (who is the client?) against the perpetrator of inappropriate trust drafting are not apparently a target and will remain as they are; similarly rights against a naughty trustee.
The identification of the mischief is clear but as yet the precise remedy proposed is not. This has been the position with the funding of Social Care for 30 years or more and counting.
