TRUSTS – THE IMPORTANCE OF APPOINTING AN ADDITIONAL TRUSTEE

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05/11/2009

The consequences of the death of a sole trustee

The importance of having more than one trustee

Ms P V sought legal advice when her partner of 20 years died without having made a Will – they were not married. Her partner took a life policy on his life with Prudential in 1994, under trust, and Ms P V was the named beneficiary. However, the trust was not an absolute trust. Prudential refused to pay out and instead asked for letters of administration. Ms P V consulted a solicitor who said there was no reason for Prudential not to pay and who offered to take proceedings against Prudential for a fee of £7,500. Who was right, and why did things go wrong in the first place?

When the facts are analysed, all becomes clear. The deceased partner was the sole trustee of the policy trust. When a sole trustee dies, his legal personal representatives will become the new trustees. This means that probate (if there is a Will) or letters of administration – as in this case – will be required. So Prudential was correct in this respect. Unfortunately, if there is no Will, the next of kin will normally be granted letters of administration and Ms P V, not being a spouse, did not qualify for this purpose as there is no such thing as a common law marriage under English law. Before making payment it would therefore be necessary for the administrators of the deceased’s estate (ie his next of kin) to obtain letters of administration.

In addition, the trust was a “flexible” trust. This means that the trustees have a power of appointment and so no beneficiary is absolutely entitled until such an appointment is made or until the appointment period expires. The named beneficiary only has a right to income in the meantime.

In this case the appointment period under the trust expired 2 years after the death of the settlor – so the named beneficiary would become absolutely entitled after 2 years. Once that happens (assuming nothing else happens in the meantime, i.e. no-one applies for letters of administration and exercises any powers as trustee), Ms P V will become absolutely entitled and Prudential will be obliged to pay the death benefit under the policy to her.

COMMENT

There is nothing like a real case to highlight what are really some very basic principles of trust law. This entire problem would have been avoided if the deceased had not been the sole trustee. If he had appointed Ms P V as an additional trustee, then (subject to any contrary trust provisions) she would be able to give a valid receipt to Prudential. As things stand, the best advice to Ms P V is to wait for the 2 year period to expire. Clearly Prudential were not acting incorrectly and the advice to sue them was incorrect.

It should be noted that many trusts have appointment periods running for longer than 2 years, typically the entire trust period, i.e. usually 80 years from the date the trust is established. In such a case the only way out of the impasse would be for someone to apply for the letters of administration and then exercise the appropriate trustee powers.


This document is strictly for general consideration only. Consequently Capital Ideas cannot accept responsibility for any loss occasioned as a result of any action taken or refrained from as a result of the information contained in it. Each case must be considered on its own facts after full discussion with the client's professional advisers.

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