The dreaded Trust Registration Service again - my client has two old Flexible Trusts with different providers, set up in 2009, whereby the trust deed confirms the settlors and trustees, but does not have any beneficiaries added.
With regards to the TRS, how do they register the trust if there are no beneficiaries?
Hi Francesca,
I think it may be worth contacting the provider. The default beneficiaries, within a flexible trust (IIP trust), hold the initial interest and will benefit from the trust fund at the end of the trust period if the trustees don’t exercise their power of appointment. Having them ensures that the trust doesn’t fail and fall back into the settlor’s estate so not having default beneficiaries may mean there are IHT problems for the settlor.
Regarding the TRS it is an express trust where there are a list of potential bens (just no individual named default bens) so you could put a “class of beneficiaries” - though it might be hard so keep to the 25 characters.
Kim Jarvis
Vitality
Hi Kim
Neither of the providers hold any details on any default beneficiaries, either named or by class. The deeds are silent in this matter.
It is difficult without seeing the trust but normally provider’s standard flexible trusts had a space to add default beneficiaries to ensure that the trust didn’t fail and fall back into the settlor’s estate. You say the trust is silent but was there space to complete default bens and it just hasn’t been completed? If there is space then has the trust been completed correctly; is it valid? - one for the provider to answer for you.
I’d draft a letter of wishes.
Register the trust.
Lodge the letters of wishes with the provider.
Richard C. Bishop
PFEP
I don’t see what a letter of wishes will accomplish if, as Francesca believes, there are no beneficiaries named in the trust instrument.
A trust is required to have three certainties (Re Knight 1840), one of which is the certainty of objects. (i.e. the beneficiaries). If there truly are no beneficiaries then there is no trust and the trustees hold as bare trustees for the “settlor”. The creation of a letter of a letter of wishes cannot change that situation.
If the life company has no documentation indicating the identity of any intended beneficiaries, it would be difficult to support an application for rectification (and who would fund that application?).
If the settlor is still alive they can try to create a trust again, using an advisor who knows what they need to do. IHT could now be an issue, but it is a case of the settlor deciding what it is they really want to do.
However, reverting to the original question – if there are no beneficiaries, there is no trust other than a bare trust for the benefit of the settlor, so the settlor is the only person who could be a beneficiary for the purposes of TRS.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
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It wasn’t uncommon (in 2009) for life companies (and is still the case today) to require a letter of wishes.
L&G still do. There are no named beneficiaries in the trust deed in many policy structures I see everyday. Are you seriously suggesting Paul a regulated life company has issued trusts without any beneficiaries?
By all means go to the expense of writing a new trust.
I’d suggest the client was asked to complete a letter of wishes in 2009, this was either not completed, not lodged with the provider or the provider has lost the form - not an uncommon occurrence.
Richard C. Bishop
PFEP
Richard, if there are “no named beneficiaries” that suggests that there may be categories of beneficiaries. In Francesca’s post, she said there were no beneficiaries (full stop!).
Regrettably, I have seen many examples of life policies written in trust where those assisting the intending settlor (frequently the life company’s agent/salesperson) have failed to ensure that the trust form has been adequately, let alone properly, completed, with essential information missing. Even where the life company’s standard trust document sets out a category of default beneficiaries, the agent has not always checked if any might exist (so, yes, a life company can issue trusts in which no beneficiaries exist and, in some case, are never likely to exist).
All a letter of wishes does is give the trustees an indication of which of the beneficiaries the settlor wants to benefit. In the case in point, if the trusts to which Francesca refers do not have any beneficiaries, a letter of wishes cannot create beneficiaries. However, if there is a category of beneficiaries identified within the policy trust, and members of that/those categories exist, and the settlor is still living, then a letter of wishes would be helpful guidance to the trustees.
It is only if there are no beneficiaries, so that there is no trust, that the settlor might consider completing a new trust.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you for your replies.
One provider has no copy of the trust deed, just the details of the trustees and settlor, no beneficiaries. The other provider is sending me a copy of the deed but has said that, again, there are no beneficiaries or class of beneficiaries noted.
The settlor passed away just over two years ago.
I wonder if a fact find was completed at the time the policies were sold? It may be that a note of the intended terms of the trust was included on that. The life company has a regulatory duty to retain the fact find, or a copy of it, whereas it seems it has no regulatory obligation to retain the trust deed.
If the deceased died more than 2 years ago, and the trusts were effective, the policy proceeds are likely to have vested in the default beneficiaries (if they can be identified). If no beneficiaries can be ascertained, I suggest the policy proceeds be treated as held on resulting trust for the settlor.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
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This began as a TRS question. Clearly the real issue is whether there is a trust in existence. Perhaps the need to register trusts will bring out many such quandaries.
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Where there are no beneficiaries or beneficiaries who can be ascertained then any property purportedly transferred to trustees fails and the property is held on resulting trust. The transferor retains beneficial ownership.
As there is no express trust in such circumstances no Registration is required.
Malcolm Finney
In Francesca’s first post she says that the trusts are flexible but no default beneficiaries have been completed. Default beneficiaries are only relevant if the trustees have not distributed within the Trust Period and have not used their power of appointment. As the settlor died over 2 years ago have the trustees not used their power of appointment and distributed the proceeds to someone named as a potential beneficiary?
If it is a provider’s standard trust form even though the provider doesn’t have a copy of the completed trust surely they should be able to provide a blank copy of the trust that would have been available when the settlor executed the trust?
There are no default or potential beneficiaries on the trust deed.
However in the client’s, and her husband’s, Will they have an addendum stating how the policies are to be distributed after second death. Can this be used ?
If the addendum has been executed in accordance with the Wills Act 1837, it might create a specific legacy of the policy proceeds (depending upon the wording).
If not, I suspect it would merely be the equivalent of a letter of wishes which in the circumstances is not binding upon the executors or the beneficiaries of the estate. Having said that, the beneficiaries might be willing to give effect to the testators’ intention and, perhaps, redirect the proceeds by way of a variation effective under s.142 IHTA 1984.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
If, as suggested above, no express trust was ever created then the beneficial interests not disposed of are held on resulting trust for the transferor (or estate) and thus would be dealt with under the transferor’s will.
Malcolm Finney
If there are no potential or default bens then there is no trust - it can’t be a flexible trust if there are is not a list of potential beneficiaries.