Does a creditor have any rights/access to a Life Insurance once they have Judgment

[steampowered]

As I understand it, under a revocable trust you are the 'trustee' and can revoke the policy up until your death. Since the policy can be revoked it is in theory available to creditors up until your death (but not afterwards). On the other hand, an irrevocable trust permanently passes ownership to the beneficiaries and hence is not available to creditors.

 

However, as I understand it, a revocable trust is still quite difficult for creditors to access. I am not an expert but imagine they would either need a court order, or would need to make you bankrupt (so that your affairs pass to the Official Receiver) to have the policy revoked. In practice I think it would be difficult or impossible for the creditors to actually find out about the policy.

 

So, you'd be better off with an irrevocable trust and it is worth changing if you can, but in reality probably still OK with the current arrangement.

 

Feel free to have a go at posting a scan of the revocable trust documents (with personal details covered up) if you want input on that ... it might be possible to do an amendment.

[steampowered]

Thank you very much Steampowered.

 

My creditors will be aware that I have a life insurance policy, as it was shown on the budget sheet I had to submit with the court paperwork/admittance forms. It's just whether they'll want to look into it, and if so, whether they can do anything about it that's worrying me.

 

I can understand now that an irrevocable trust would be far better, but as I can't afford to pay for somebody to help me with that, I fear I'm stuck with this revocable one.

If you want help on trust conversion, do you have access to a scanner or can someone help you to scan a .PDF of your trust documents?

[steampowered]

I can try and borrow a scanner Steam powered, but it may take a couple of days.However, if the insurance company and the intermediary are both saying that they can't help me to change the existing trust, I'm not sure what I can possibly do, even if I manage to scan the original trust docs on here?

 

Very grateful for your input

You can declare an irrevocable trust. This would need to be properly documented and may need to be formally notified to the insurer. You might not need the consent of the insurance company or the broker to do this, but it sounds like you would have to prepare your own documentation.

[steampowered]

A bare trust is a type of irrevocable trust. That sounds like it might be a good idea.

[steampowered]

I think you are all good Toots111. That seems to be an irrevocable trust. Clause 8.2 in particular makes it clear that ownership of the policy has transferred to the trustees (to hold on behalf of the beneficiary) and cannot be recalled to the person setting up the trust. It shouldn't be accessible to creditors or be treated as part of probate.

[steampowered]

Hi steampowered, thanks for your reply.

 

However, as I am also a trustee, (so 3 trustees in total), doesn't that mean that I am an owner of the policy please? As such, from what I have researched, doesn't that mean that a creditor can therefore force me into whatever action they desire??

The trustee's role is to hold the property on behalf of the beneficiaries. The trustee can't take the trust property for his/her own purposes.

 

You are also the settlor - see clause 8.2 which prohibits the trust property from being applied for your benefit. I don't think you could revoke the policy even if you wanted to.

 

If you are concerned (I don't think you should be concerned) you may remove yourself as trustee (see clause 7.5).

[steampowered]

The notes at the beginning say that the Trustees are the legal owners of the policy, so it worries me that a creditor may be able to attach themselves to the policy, and gain the proceeds after I die.

 

This is referring to the distinction between legal/beneficial ownership. You can find information on the subject online. In essence, the legal owner is the person who is the registered owner of a piece of property. The beneficial owner is the 'real' owner who is entitled to the property.

 

The legal owner of a property is the trustee. The beneficial/equitable owner is the beneficiary. This is a concept which applies across the law - for example, when someone dies the executor is the trustee and the persons due to inherit in the will are the beneficiaries. Another example - when you buy a house and send the money to a solicitor, the solicitor is the trustee (legal owner since the money is in the solicitor's bank account) but you are the beneficiary (beneficiary owner since belongs to you).

 

It is important to understand that the trustee only holds the property for the beneficiary. The trustee can't just take the property for his/herself.

 

For the life of me, I can't understand what 8.1, 8.2, 8.3 and 8.4 mean - 8.1 to 8.3 worry me, as the words 'revocable' and 'irrevocable' appear, although 8.4 seems to be saying that the Settlor is an Excluded person and that this exclusion shall not be revocable. If I am an excluded person, even though I am a legal owner of the policy, does that mean that as there will never be any monies due to me, a creditor could not gain access to the monies please??

8.1 says the Trustees can declare that certain beneficiaries are not entitled to get the property. That is more relevant where you have a trust in favour of (for example) every student who graduated from Cambridge university during 2011, rather than a trust to benefit clearly defined individuals such as your daughters.

 

8.2 disregard

 

8.3 says a declaration made under 8.1 may be revocable or irrevocable. This has nothing to do with whether the trust itself is revocable or not.

 

8.4 says you are en Excluded Person. As set out in 8.1, this means you are totally excluded from benefiting from the trust fund and hence the money is not available to your creditors.

 

Part C, Key Provisions, 4.1 makes it sound as though the trust can be changed, as it says 'which may be revocable during the Trust Period', but then says 'or irrevocable'????? 4.2 also gives the impression that the Trustees have the power to alter things and if this is an irrevocable trust, surely this wouldn't be the case?

The revocability referred to in clause 4.1 is revocability of decisions about how to allocate the trust fund between beneficiaries, not revocability of the trust itself.

 

6.3 also seems to be saying that the Trustees have the power to do things that I thought an irrevocable trust would not allow?

No, it is common to see the trustees given very broad powers to use the trust funds as they see fit.

 

7.3 says that the Settlor has the power to appoint new Trustees, so could a creditor force me to add themselves as a new Trustee please? If so, they would obviously have the same power as the other Trustees?

Trustees are under statutory and common law duties to act in the interests of beneficiaries, not themselves.

 

8.2 gives me hope, as it is saying that the Settlor cannot gain from the Trust, (although I'm not sure why my exclusion from any proceeds gives me hope; I think I'm losing the plot in trying to understand what anything means !!!!).

Yes, 8.2 is very clear that the proceeds cannot be applied for your benefit. Payment of creditors would be an application for your benefit. To be honest this clause is not necessary as that is the whole concept of a trust, but I guess they might as well make it explicit.

 

I think the bottom line is that I'm praying that somebody on here can tell me, irrefutably, that this Trust is protected fully from my creditors? I need to be sure in my own mind that my daughters will get the proceeds. I have nothing else to leave them, so that's why I'm so stressed about this matter.

Yes, I am quite comfortable in telling you that this Trust is fully protected by creditors. You couldn't access the trust property (i.e. the insurance policy) even if you wanted to.

 

I knew I'd forget something; as the Trust docs show, this is a Discretionary Trust and from what I can gather, this type of trust is used where the Settlor wants the freedom to make changes to beneficiaries at any time?

Not the Settlor. Once a trust is in place, the Settlor no longer owns the property or has any control over it.

 

A fixed trust is where (for example) each beneficiary is entitled to 50% of the trust property. A discretionary trust means that the share of each beneficiary is not fixed. The trustees can allocate the trust funds between beneficiaries, but you still have to be a beneficiary to get anything.

[steampowered]

Under 8.1, would it be necessary, or worth my doing, to add a clause to say that my creditors are excluded people please?

This is not necessary. If you read 8.1 closely, you will see that the concept of 'excluded persons' applies only to people who would/might/are/could become beneficiaries. Since the only beneficiaries are your daughters I don't think it is necessary to expressly exclude your creditors since they would never fall within that category.

 

The concept of 'excluded person' was traditionally used in family trusts. People would create a trust in favour of their children (i.e. all children would be beneficiaries) but would then try to exclude children who (for example) refused to go to university or indulged in substance abuse. It was traditionally an attempt by wealthy parents to control their offspring.

 

Under 7.3, if Trustees are there to act in the interests of the beneficiaries, is it/could it be, a problem that my two daughters are both Trustees and beneficiaries please? Should I have chosen somebody else to act as Trustees, instead of them? (Although I don't really have anybody else close enough to trust).

No, that's fine. Technically speaking, whenever you co-own a home with someone else, there is always a trust - the legal owners being the persons registered on the land registry for the beneficial owners (usually the same people) in proportion to their respective contributions towards the equity.

 

I've researched trusts so much over the past few days, ( maybe I should retrain as a solicitor now, although way too old unfortunately!!), and have repeatedly read that Discretionary Trusts allow Trustees to change beneficiaries. If that's correct, as I am the Settlor AND a Trustee, doesn't that mean that I have the power to make such changes, (in which case couldn't a creditor force me into adding them as a beneficiary?)? Or, would it need all 3 Trustees, myself and my daughters, to make any amendments to the beneficiaries please?

No, a discretionary trust only allows you to allocate entitlements between existing beneficiaries. It does not allow you to add new beneficiaries. You have to be a beneficiary first to get anything.

 

For example, if you set-up a discretionary trust in favour of your two children, the trustees can decide to give one child more than the other. Perhaps one child needs more money than the other for medical or education expenses. But the trustees cannot give the money to someone who is not your child.

[steampowered]

No worries, enjoy your Xmas!