Non statutory trust policies
A life policy can be written as a trust even though it is not under the act. These are then termed non-statutory trusts. This would be used for a joint life policy or where the beneficiary was outside of the wife and children.
The policy will be similar as under the act and it must create a valid trust from the outset as the terms of the act can not be used. Unless the trust is completely constituted it can be revoked by the settler.
Whilst procedure varies this is an example.
- The proposer completes a declaration asking the life office to issue the life policy under the trust set out in the declaration.
- The declaration would use similar words as used under the act.
- It would request that the life office issue the policy to the insured as the sole trustee.
- The life office may incorporate the trust wording into the policy.
- Once the life policy has been issued the insured can appoint further trustees by a simple deed of assignment.
- Occasionally there may be an attempt to purport additional trustees into the policy by merely naming them in the declaration or on the life policy. There is doubt as to whether this provides them with effective legal title to the policy and therefore may not be suitable. If the trustees have no legal interest in the policy then they may not be able to act when the insured dies.
Where a joint life policy is involved is it wise to name a third trustee in case both joint lives die in the same accident.
When a non statutory trust is issued in Scotland then the Scottish law on trusts must be followed. If the trust is to be governed by Scots law then delivery will have to be performed.
Dealing with trust policies
Trustees of a life policy are owners of the policy at law and the life office should deal with them rather than the beneficiaries. Forms of discharge will need to be signed by the trustees as would any loan applications.
Powers of trustees
Many trust wordings give the trustees power to deal with the life policy in any manner they think fit. Some legal opinions subscribe to the view that unless the trust wording says otherwise the trustees must have the same legal remedies under the life policy as the insured did, since legal interest passed to them without qualification.
In the Married Women’s property ( Scotland) (Amended) Act 1980 it was made clear that the trustee of a life insurance policy under the 1880 act does have power subject to any specific terms of the trust, to exercise any options in the life insurance policy or to surrender it.
Any options exercised must be exercised for the benefit of the beneficiaries as these rights form part of the trust property.
If a life office believes that the trustees intended action under the life policy is in breach of the trust then they should not accede to those instructions. If it allowed the transaction to go ahead it could be liable to the beneficiaries for any loss since a trustee can not have good title to any changed document nor provide a good assignment if that action is in breach of the trust. There is however no obligation for the life office to investigate the matter unless it had good reason to suspect a breach.