Legal Tips

Trust Policies

Document Date: 01-Mar-2011

1. What is a s73 policy?
2. What is a trustee?
3. What if the assured had failed to appoint a trustee?
4. Does NTUC Income allow a s73 trust to be created at any time during the lifetime of the policy?
5. What are the advantages of a s73 trust policy?
6. What are the disadvantages of a s73 policy?
7. What happens to the s73 policy if the beneficiary dies before the life assured?

Please note that the information below applies only to S.73 CLPA trusts created before 1 September 2009 which will continue to be recognised. With effect from 1 September 2009, nominations may no longer be made under S.73 of the Conveyancing and Law of Property Act (CLPA). Click here for more information on trust nominations under the Insurance Act. The amendments to the Insurance Act on trust nominations do not apply retrospectively to S.73 CLPA trust nominations.

1. What is a s73 policy?
   
   s73 policy is a trust policy. When a life policy is taken out by a person on his/her own life, but is expressed to be for the benefit of his/her spouse and/or children, a trust is automatically created. Because it is a trust policy, the assured may appoint a trustee or trustees.

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2. What is a trustee?
   
   A trustee is the person to whom property is entrusted for the benefit of another. A trustee can be anyone who is above 21 years of age, of sound mind, and not be under any legal disability eg bankruptcy. The trustee under a s73 policy is usually appointed by the assured under the policy or by a written memorandum.

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3. What if the assured had failed to appoint a trustee?
   
   If no trustee has been appointed, the law deems the assured or his personal representatives as trustees. Where necessary, a trustee may be appointed by the High Court.

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4. Does NTUC Income allow a s73 trust to be created at any time during the lifetime of the policy?
   
   Yes.

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5. What are the advantages of a s73 trust policy?
   
   [1] The proceeds of the trust policy will not form part of the assured's main estate. It will be subject to estate duty as an estate by itself which may result in a lower rate of estate duty. To qualify for this, the trust must be created at inception and the deceased (insured) must never have any interest in the policy.
   
   [2] The proceeds are also protected from any claims by the creditors of the life assured.
   
   [3] The proceeds are paid directly to the trustees. The letter of Probate/Administration is not required to settle the claim.

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6. What are the disadvantages of a s73 policy?
   
   The life assured cannot surrender, assign, or take a loan on the security of the policy except with the consent of the trustees and beneficiaries.

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7. What happens to the s73 policy if the beneficiary dies before the life assured?
   
   The policy will vest in the estate of the beneficiary. It would not revert to the life assured.