I’ve been made aware of a situation where trustees of a discretionary trust have assigned the trust property (life assurance bonds) to the beneficiaries who are minor children. I know that a minor child could not take out a policy of life assurance (as they cannot enter into this type of contract), but as the contract is in existence and the deed of assignment is valid, has the transfer of ownership occurred by matter of fact? If so, how would it practically work e.g. would correspondence be with the parents/guardians until they reach 18?
I wonder whether the trustees still hold legal ownership, but they have made an irrevocable appointment of the beneficial interest in favour of the minors. This means that the beneficiaries are the absolute beneficiaries meaning that if the trustees then surrender the bonds any income tax liability is assessed on the beneficiaries, as absolute owners?
You might want to speak to the insurance company to see whether legal ownership has actually passed to the minors.
Trustees are able to assign legal ownership of a bond to a beneficiary. However, an assignment to a beneficiary who is a minor is not I believe possible. In the latter case a bare trust could simply be created by the trustees executing a deed of appointment (trustees continue to possess legal title but beneficial ownership passes). No income tax charge arises as there is no chargeable event (assuming an assignment for no consideration).
Were in the future a chargeable event occurs the bare trust beneficiary is in principle liability to any income tax charge.
A life assurance “bond” is a contract. The benefit of a contract is assignable unless the contract says otherwise or it is inherently unassignable e.g contract for personal services. There is no general restriction in law about what property a minor may own except for a legal estate in land.
But the legal ownership of the life bond rests with the trustees of the discretionary trust. I won’t have thought that the trust would allow the trustees to assign legal ownership to a minor beneficiary.
Kind Regards
Kim Jarvis
I am assuming it is a provider standard trust and normally the trust will state that in order for the trustees to assign the legal ownership and get a valid discharge the assignee must be 18 (or it can be transfer to the minor’s parent/guardian and they hold it on a bare trust.
Kind Regards
Kim
There is a number of sweeping statements in this thread. It is difficult to answer definitively without sight of both the actual life assurance contract and trust instrument.
1 Unless the contract is specifically made non-assignable it is assignable. Non-assignment clauses can be effective, even to prevent an equitable assignment, but the latter has become doubtful as the Court of Appeal in First Abu Dhabi Bank [2018] EWHC Civ 14 queried whether the leading authority Linden Gardens [1994] 1 AC 85 had settled that issue.
In Linden the House of Lords noted with approval that as in Re Turcan [1888] 40 Ch. D 5 " the term precludes or invalidates any assignment by A to C (so as to entitle B to pay the debt to A) but not so as to preclude A from agreeing, as between himself and C, that he will account to C for what A receives from B". The case involved an insurance policy so B was the issuing company. While the non-assignment clause was valid it did not prevent A making a declaration of trust over the policy. There is no doubt at all that B must pay A. So if A is a trustee B must allow A to surrender, if the contract permits that in principle, even if B holds for C a minor.
Of course the non-assignment clause must be clearly drafted. I am not sufficiently familiar with insurance company practice but someone on here will be. Do they generally prohibit assignment? in Re Turcan the policy contained a term that it should not be assignable “in any circumstances whatever”. But the court held that A could declare a trust over it even so. One sometimes finds in Articles of Association that an attempt to transfer results in forfeiture of the shares but such a term in an insurance policy would be ridiculous and probably void under public policy or unfair and non-binding under consumer law e.g. Sch 2 CRA 2015.
2 There is nothing to prevent a minor from owning an insurance policy. Unless validly prevented from suing by an effective non-assignment clause a minor can litigate through a litigation friend e.g. parent. But the logical person to enforce the contract is the present trustee as long as the trustee remains the legal owner, as under a declaration of trust over the policy in favour of the minor. Given the doubt about equitable assignments such a declaration may well be a better bet (and the court is unlikely to hold that an ineffective transfer is a declaration of trust). But without a non-assignment clause the policy can be legally assigned and with notice to it the company can have no defence to the activation of a surrender provision in the contract. The involvement of a parent as bare trustee is not necessary when the present trustee can make an appointment on trust and remain the legal owner. Whether it is overall a good idea is a separate issue.