Our husband and wife clients jointly settled a life assurance bond into a bare trust 13 years ago but there is no named beneficiary on the trust deed, the box was just left blank. We are wondering whether a trust actually exists. The insurance company concerned have stated verbally that if a named beneficiary is inserted into the empty box on the trust deed then a potentially exempt transfer to said beneficiary will be deemed to have occurred on the date the trust deed is dated. They have ignored our requests to put this in writing My instinct is that a trust doesnât not actually exist since the settlors have simply agreed to give something away but havenât said who they are going to give it to! The performance of the investments in the life assurance bond has been poor and I think it would be better to encash the bond and put the funds to better use. Do members agree that the trust doesnât actually exist and that the beneficial ownership of the bond never moved away from the settlors? Thank you.
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I assume that there is no evidence of who the beneficiary was intended to be. The trust is invalid for lack of certainty of objects. Inserting a beneficiary now cannot be backdated in the way the insurance company suggests. It is a suggestion revealing their ignorance, to be charitable, or mischievous irresponsibility, being cynical.
Hello Jack. Thank you very much for your response. Your assumption is correct, apart from the fact that, not unusually, they had intended the beneficiary to be their children but for whatever reason this intention never made its way to being documented, certainly not on the trust deed, nor anywhere else as far as I can see. I take it then that a retrospective TRS registration would not be required, albeit rather pointless in any event.
Iâve seen a lot of trust deeds that are pre-printed forms drafted by life offices over the last year or so, as we have assisted in getting the trusts TRS registered. In every case, the âsmall printâ includes a list of âpotentialâ beneficiaries. Typically the clause provides for the following to be beneficiaries:
a. The spouse of the settlor (unless expressly excluded or a joint settlement)
b. The widow/er of the settlor
c. The children and remoter issue of the settlor
d. The spouses of people in b & c
e. Any nominated person other than the settlor(s).
If the trust deed creates a discretionary trust with the class of beneficiaries as suggested by Duncan, but fails to include a default beneficiary, I donât believe the trust is invalidate, itâs just that the default position will likely be a reversion to settlor.
Looks like a carful reading of the trust deed is required to identify if there is a valid discretionary trust. If there is, then TRS will be in point.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
If that was so then for us to be told that there is no named beneficiary was somewhat misleading. If the trustees have a power of appointment in favour of a class, then the trust would be valid ab initio because anyone within the class, despite having a mere spes, has an equity to enforce it. The trustees can decide to do nothing but they must do that only after giving proper consideration to whether to exercise the power and, if so, how. If they are unacceptably supine the court can remove them and appoint trustees who will act as Equity requires.
The failure to name a beneficiary with a fixed interest means that there was no initial IIP which would have allowed PET treatment for a transfer into trust before March 22 2006. The trustees could exercise that power to name a default beneficiary now who is a member of the appointed class (if the specific power allows) but that will not make any past transfer into trust a PET nor any future transfer in.
It might change, or facilitate a change in, who will be liable for income tax on any future chargeable event gain. s465(2) requires that an individual âbeneficially owns the rights under the policy or contract in questionâ. IPTM acknowledges that this is so with a bare trust but offers no comment on whether a default beneficiary who is absolutely entitled to capital, but subject to defeasance by exercise of a power, âbeneficiallyâ owns the policy. (Someone on here may have experience of HMRCâs approach). Such a person before March 22 2006 would have had an IIP and prevented a trust qualifying as an A&M for the different tax of IHT, though not absolutely entitled for CGT. At any rate making such an appointment now or before a chargeable event occurs could manage an IT charge to best advantage.
There will have been probably some past IHT 10 year anniversary charges but of course perhaps at a nil rate. And an outright appointment will be an IHT RPT event. again possibly at a nil rate. We are not told the value of the policy at any given date or the settlorâs cumulation.
I agree with Paul that the current position is that, pending exercise of the power, there is a resulting trust for the settlor or his estate if deceased. So there is presently a GROB for IHT if the settlor is alive or was if he has died. If still alive, naming a default beneficiary by the trustees exercising the power will be a PET under s102(4) FA 1986; it might be better for the settlor to dispose of his interest which will be a separate TOV but of excluded property, not nullifying the above PET but at least making the devolution of the interest less complicated albeit still subject to defeasance. For the settlor this may come as an unexpected dilemma: to accept the GROB or get rid of itand hope to survive 7 years. If the settlor is dead (and these trusts often endure despite that) then it may be the GROB has been overlooked.
I agree TRS would be in order unless, as seems unlikely, exclusion is available under para 4 of Sch 3A of the 2017 Regs.
Thank you all very much for your excellent contributions. Duncan you are absolutely right to suggest that there may be potential beneficiaries as that is often the case with life insurance company trust deeds. However, unusually, in this case there are no potential beneficiaries. I have read the trust deed several times as has my colleague and there are none. The deed is entitled âabsolute trust declarationâ so I would not expect to see any potential beneficiaries.
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The information in this e-mail is confidential and is intended solely for the addressee. Access, copying or re-use of information contained herein by anyone else is unauthorised. Any views or opinions presented are solely those of the author and do not necessarily represent those of Grierson Dickens Limited. If you are not the intended recipient please contact Grierson Dickens on 01252 718638. Grierson Dickens Limited. Mailing address 10 St Georges Yard Farnham Surrey GU9 7LW. Registered Office 10 St Georges Yard Farnham Surrey GU9 7LW. Registered in England No 3827610 VAT Number 862585395. Grierson Dickens Limited is authorised and regulated by the Financial Conduct Authority.