Article: Trust Nomination of Insurance Policy Moneys

All policy moneys subject to the trust created shall not form part of the estate of the policy owner or be subject to his debts. However, if it is proved that the relevant policy was effected, and the premiums for the relevant policy were paid, with intent to defraud the creditors of the policy owner, the creditors shall be entitled to receive out of the policy moneys a sum equal to the premiums so paid. This means that absent any intent to defraud creditors, a person’s insurance policy moneys can be protected from his creditors.

On the death of any nominee, the nominee’s interest in the policy moneys shall, subject to any encumbrance created over, or any disposition of, the nominee’s interest while the nominee was alive, form part of the nominee’s estate. In other words, the policy moneys wholly belong to the nominee.

It should be noted that the obligation to pay premium in respect of the insurance policy is a contractual one as between the policy owner and the insurer. The trust nomination regime merely provides a mechanism to decide on “how the proceeds from their insurance policies should be disbursed” (Second Reading of the Insurance (Amendment) Bill (19 January 2009) by then Minister for Trade and Industry, Mr. Lim Hng Kiang). The issue of how proceeds are to be disbursed, and the fact that the interest in policy money under the policy is held on trust, should not impact the policy owner’s contractual obligation to pay premium.

How does a trustee relinquish his role as trustee of a trust policy (under a section 49L nomination)? What if a nominee pre-deceased the policy owner at the time that trustee wants to relinquish his role?

The Act not appear to provide for a mechanism by which a trustee may relinquish his role as a trustee of policy moneys on his own initiative. It is likely therefore that there are two plausible options available for a trustee to relinquish his office.

First, he can request the policy owner to revoke the appointment of the trustee under section 49L(12), IA. Second, it is plausible that a trustee appointed under the IA would be subject to the Trustees Act (Cap. 337). Section 42(1) of the Trustees Act provides that the court may make an order appointing a new trustee in substitution for or in addition to any existing trustee. A trustee appointed under the IA could possibly make an application to the court for an order to be substituted as trustee. However, there appears to be no clear authority on this.

The fact that a nominee had predeceased the policy owner at the time when the trustee wishes to relinquish his role should not affect the above analysis, assuming the nominee was not the sole nominee under the policy. If a sole nominee had predeceased the policy owner, his interest forms part of his own estate pursuant to section 49L(6), IA. The statutory trust formed pursuant to a nomination under section 49L, IA would therefore be extinguished since the subject matter of the trust would have vested in the nominee’s own estate and there would no longer be any subject matter in the statutory trust. If there are other nominees other than the deceased nominee, the trust subsists and the analysis above on the relinquishment of a trustee would be applicable.

Who must consent to a revocation of trust nomination?

Section 49(7), IA provides that the following persons may give prior written consent to the revocation of a trust nomination:

(a) in a case where the policy owner is not the trustee of the policy moneys—
(i) any such trustee (it need not be all the trustees); or
(ii) so long as no nominee has died before the revocation—
(A) each nominee who has attained the age of 18 years; and
(B) a parent or legal guardian, not being the policy owner, of each nominee who is below the age of 18 years;

[In other words, all the nominees must consent. But if there is any nominee who is below 18 years old, the parent or guardian of that nominee must give consent in lieu of that nominee who is a minor.]

(b) in a case where the policy owner is a trustee of the policy moneys, and so long as no nominee has died before the revocation —
(i) each nominee who has attained the age of 18 years; and
(ii) a parent or legal guardian, not being the policy owner, of each nominee who is below the age of 18 years;

[Similarly as above, all the nominees must consent. But if there is any nominee who is below 18 years old, the parent or guardian of that nominee must give consent in lieu of that nominee who is a minor.]

Does the appointment or revocation of an appointment of a trustee for a trust policy (section 49L nomination) require the consent of any trustee or nominee of the policy?

Form 3 of the Schedule in the Insurance (Nomination of Beneficiaries) Regulations 2009 applies to the issue of appointment or revocation of appointment of a trustee under S 49L, IA. There does not appear to be any requirement in Form 3 for consent to be obtained from any trustee or nominee before a policy owner may appoint or revoke the appointment of a trustee.

Can any trustee (except the policy owner if he is also the trustee) give consent to the revocation of a trust nomination without having all trustees to consent?

Any trustee may give consent to revocation of a trust nomination.

Will it make a difference if a nominee has pre-deceased the policy owner (i.e. can the trust nomination be revoked because the deceased’s entitlement to the policy now passes on to his estate)?

If a nominee had predeceased the policy owner, his interest forms part of his own estate pursuant to section 49L(6), IA. The statutory trust formed pursuant to a nomination under section 49L, IA would therefore be extinguished since the subject matter of the trust would have vested in the nominee’s own estate and there would no longer be any subject matter in the statutory trust. In the circumstances, it would not be possible for a policy owner to revoke the trust nomination after the nominee under an (irrevocable) trust nomination has passed on.