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08th June 2020

High Court decision confirms defective life assurance trust is valid

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The high court has just confirmed that an apparently defective life assurance trust deed is valid.  Whilst it is good news that the judge took a practical approach on the facts it emphasises that having such documents reviewed by a trust lawyer can avoid future problems.

Having to go to court to confirm that a trust is effective is a costly way to resolve these defects, which could have been avoided or corrected at an earlier stage.

In the case of Bowack v Saxton, Mr and Mrs Bowack took out offshore investment bonds and signed a trust deed assigning the bonds to a trust. Each of Mr and Mrs Bowack paid £325,000 for their bond. The trustees of the trust were to be Mr and Mrs Bowack and their daughter Mrs Saxton.

They were advised to enter into the arrangement by an independent financial adviser as part of an estate planning exercise. They completed paperwork to apply for the issue of the bonds and a standard trust deed supplied by the life assurance company both of which were completed with the assistance of the independent financial adviser. Mr and Mrs Bowack’s cheques were cashed and their bonds issued.

Unfortunately, there were defects in the trust deed:

  • It was not dated
  • It asked for the details of the bonds to be inserted to identify the property to be held on trust
  • Mrs Saxton’s signature on the deed had not been witnessed.
The standard trust deed directed the people completing it to leave the date and the description of the bonds blank for these to be completed by the life insurance company. The life insurance company never did this, apparently because it thought that the trust was ineffective because Mrs Saxton’s signature had not been witnessed.

The judge decided that the lack of a date did not invalidate the trust. The details of the bonds did not need to be inserted as the property intended to be subject to the trust could be determined from the circumstances and that there was no legal need for Mrs Saxton’s signature to be witnessed.

The trust of the bonds was therefore valid and effective. The only word of warning here is that although the life assurance company and the independent financial adviser and HM Revenue & Customs were notified of the proceedings none of them took part and the evidence supplied by Mr and Mrs Bowack was unchallenged.

For more information please contact Emma Satterly on 01223 461155 or click here to email Emma.