Retirement Annuity Contracts (Section 226) Buy-Out Plans (Section 32) Declaration of trust Guidance notes These notes are designed to explain the consequences of completing the Declaration of trust ( the trust ). The trust is designed for use with the following Clerical Medical retirement annuity products or Section 32 type products: Personal Pension Contract, Flexible Retirement Plan, Personal Pension Account (Retirement Annuity Series), Pension Transfer Account (PTA), Series 3 Section 32, Trustee Buy-Out Plan, Buy-Out Plan and Individual Buy-Out Plans. If you are unsure whether this deed is suitable for use with your pension plan or you are transferring the benefits from an existing Retirement Annuity Contract (RAC) or Section 32 plan which is already written under trust please contact your financial adviser. Why would I put my pension death benefits in trust? Where you are married or in a civil partnership on your death and the benefits pass under your will/intestacy to your spouse/civil partner, then no inheritance tax would arise as the transfer would normally be exempt. However on the death of your surviving spouse/civil partner the death benefit may then increase the value of their estate and could increase future inheritance tax liabilities. By placing the death benefits in trust, if you die before age 75 without having purchased an annuity, your death benefits will be paid to the trustees of the trust, rather than your personal representatives or nominated beneficiary. As a result, inheritance tax would not normally (see below) be due as the lump sum would not form part of your estate for inheritance tax purposes. By signing the trust you will be creating a discretionary trust which is a very flexible form of trust. The trust will allow the trustees to pay income or capital to any or all of the beneficiaries named in the trust deed at the trustees discretion which means that control is retained by the trustees over the death benefits on your death. If as a member of a pension scheme you die before age 75 without having purchased an annuity a lump sum death benefit may be payable. As a policyholder of an RAC or a Section 32 plan this lump sum will form part of your estate on death. Death benefits under other types of pension scheme are usually payable outside the member s estate. On death, the assets within your estate will usually be chargeable to inheritance tax, at a rate of 40%, to the extent that the value of your estate exceeds the nil rate band at the date of death. This means that a lump sum death benefit payment of 100,000 from your RAC or Section 32 plan could potentially generate an inheritance tax charge of 40,000. Are there any tax implications? Provided that you are in good health when the death benefits are written under trust there should be no inheritance tax consequences. However, if you are in ill health and die of natural causes within two years of placing the policy under trust, the Revenue will treat you as making a transfer chargeable to inheritance tax. The inheritance tax claim would be based on the open market value (at the time of the transfer) of the death benefits less the value of the retirement benefits. If you are not in good health you should speak to your financial adviser before proceeding. 1
The trust fund does not form part of your or the beneficiaries estates for inheritance tax purposes. Instead the discretionary trust is subject to its own inheritance tax regime which in general results in much lower rates of tax than would be payable if the assets were held by you. The points at which inheritance tax are chargeable are: Can trustees be removed and new trustees appointed under the trust? Yes. The protector has the power to appoint and remove trustees. Every tenth anniversary of the creation of the trust. The maximum rate currently applicable is 6% of the value of the trust fund at the ten year point. Upon a distribution of capital from the trust. Tax is levied on the distributed amount at a rate proportionate to the tax rate applying at a tenth anniversary. No inheritance tax would be payable where the value of the trust falls within the available nil rate band at each ten year anniversary. If you would like more information on the taxation of discretionary trusts please speak to your financial or tax adviser. Tax treatment will depend upon your individual circumstances. Your circumstances and tax rules may change. Who should I appoint as trustee? Who is the protector? This is the person who oversees the activities of the trustees. You will usually want to be the protector during your lifetime. There is provision in the trust document for successor protectors to be nominated. As the death benefits only become payable to the trustees on your death we recommend that you nominate a successor protector. The protector s role is to ensure that the trustees are aware of the circumstances and requirements of the beneficiaries. This is achieved by requiring the protector s agreement to the exercise of certain of the trustees discretionary powers. These include: power to appoint capital in favour of beneficiaries power to add or remove beneficiaries. As settlor you will automatically become a trustee. It is, of course, your decision who should be the other trustees to act with you. The other trustees will generally be members of your own family. The protector does not have the power of veto over income that may arise to the trust fund which may be accumulated or paid out to one or more beneficiaries purely at the discretion of the trustees. Trustees must be adults of sound mind who are aware of, and sympathetic to, the circumstances of the beneficiaries. You must appoint at least one other person to act with you and you may wish to consider appointing two other persons to act with you on the basis that the death benefits only become payable to the trustees on your death. Your additional trustees may be beneficiaries under the trust but if beneficiaries are to be trustees, you should take care to select individuals who will act impartially and who will not try to defeat the interests of other beneficiaries in their own favour. What happens if a trustee dies or no longer wishes to act? Any trustee who no longer wishes to act can retire as long as a replacement is appointed simultaneously or, if no replacement can be found, there is at least one trustee other than you, remaining after the retirement. Appointment is usually made by the protector, however, where there is no protector, appointment will be by the continuing trustees. In some circumstances it may be appropriate to appoint a professional person (such as a solicitor or accountant) as a trustee although such a trustee may charge for his or her services (and since the death benefits only become payable on your death, there will be no trust fund during your lifetime from which any fees can be met). Where a trustee dies a replacement will need to be appointed immediately unless there is at least one trustee other than you remaining after the death. Who are the beneficiaries? Can I tell the trustees who I would like to benefit? These are set out in Box D of the trust and include your spouse/civil partner, children and grandchildren and their spouses/civil partners. Yes, you may tell the trustees who, from the list of beneficiaries you wish to benefit at any time with an expression of wishes letter (although this is not binding on the trustees). 2
Can further beneficiaries be added to the trust? Yes. Further beneficiaries (other than yourself) can be included on the trust form at outset at clause vi in Box D or added after the trust has been established. Adding beneficiaries after the trust has been established requires the written agreement of the protector and the signature of all of the trustees on a further deed naming the additional beneficiaries. Can beneficiaries be removed from the trust? Removal of beneficiaries is generally not required, as the trustees can simply decide not to exercise their power of appointment in favour of any person who is not to benefit. There may, however, be circumstances where it is desirable to remove a beneficiary and the terms of the trust allow for this to be achieved. The exclusion must be made by the trustees by deed and requires the consent of the protector. How long can the trust last? The trust will continue after your death and can last for a maximum of 80 years from the date of the trust, or until such earlier time as the trustees decide. In the unlikely event that undistributed capital remains in the trust at the end of the trust period, the undistributed balance will be distributed to such of your descendants who are living at that time and, if none, will be distributed amongst the surviving members of the beneficial class. Who needs to sign the trust? The trust requires you and your trustees to sign on the last page. The signatures must be witnessed by an independent witness. This must be someone who is at least 18 years old and not you, a trustee or beneficiary of the trust. Next step Once you have completed the trust as indicated by the notes in the left hand margin of the trust deed and you and your trustees have signed it in the presence of independent witnesses you should send us the original deed for recording. The trust will then be returned to you and should be kept in a safe place with your policy documents. And finally Every care has been taken in drafting this deed, however we cannot guarantee that it will meet your specific requirements. We recommend that you consult your own legal or tax adviser. The information given in these guidance notes is based on Clerical Medical s understanding of UK law and HM Revenue & Customs practice at the time of printing. Clerical Medical accepts no liability for the accuracy of the information provided. Legislation regarding taxation and Revenue practice may be subject to change, which cannot be foreseen. Tax treatment will depend upon your individual circumstances. Your circumstances and tax rules may change. 3
Declaration of trust Please refer to the notes in the margin when completing this form. Boxes A F should be completed clearly and correctly as described. Box G should be completed only if the law of Scotland is to apply. Any amendments or correction of errors made before the Declaration is signed should be initialled by you and the additional trustees. Once completed, this Declaration should be signed by the settlor and the additional trustees in the spaces provided on the last page. Note that the settlor should sign once only. Signatures should be witnessed by an independent person who should sign and then print his or her full name and address. Insert date of last signature A Date of Declaration of Trust Date (DD/MM/YYYY) / / 2 0 The settlor is the person who is creating the trust. You should, insert your full name and address in Box B. B Settlor Full name(s) Address In Box C, insert the full names and addresses and further details of the persons who have agreed to act with you as trustees. C 1 Additional Trustees Full name As settlor, you are automatically a trustee and do not need to repeat your details here. Address There is space in Box C for three additional trustees. You must appoint at least one other person to act with you and you may wish to consider appointing two other persons since the death benefit is paid to the trustees on your death. Full details of all of the additional trustees are required for prevention of money laundering purposes. 2 Country of residence (if different or not UK) Nationality Occupation Date of birth (DD/MM/YYYY) / / Full name Address Country of residence (if different or not UK) Nationality Occupation Date of birth (DD/MM/YYYY) / / 3 Full name Address Country of residence (if different or not UK) Nationality Occupation Date of birth (DD/MM/YYYY) / / 4
The beneficial class is widely drawn. However, if you wish a particular person or category of person not included in the existing list (other than yourself) to be capable of benefiting from the trust fund, the additional category or the full name of the additional person should be inserted in the space available at vi in Box D. If, at the end of the trust period, any part of the trust capital has not been appointed to a discretionary beneficiary, any remaining balance will be distributed amongst your surviving descendants and, if none, amongst the surviving members of the beneficial class. D i. the spouse widow widower civil partner or surviving civil partner of the settlor. ii. the children and remoter descendants of the settlor (including any adopted children illegitimate or legitimised children and step-children). iii. the spouses widows widowers civil partners and surviving civil partners of the settlor s children and remoter descendants. iv. any person (other than the settlor) descended from the mother or father of the settlor. v. such other objects or persons or classes of persons as are added under clause 7.8. vi. Beneficiaries The protector is the person who oversees some of the activities of the trustees (such as the power to appoint capital to a beneficiary). The protector also has power to appoint and remove trustees. Insert the name and address of the person who is to be the first protector in Box E. You will usually want to be the first protector. There is provision in the trust document for successor protectors to be nominated or appointed. Insert the product name, policy number and issuing company in Box F. E Protector Full name(s) Address F The Policy Product name Policy number Issued by If you would like the law of Scotland to apply to your Declaration you should sign in Box G. Otherwise Box G should be left blank and the law of England and Wales will apply. The law of Scotland would normally be selected only if the settlor is resident or domiciled in Scotland. G Law of Scotland to apply (Settlor should sign here only if the law of Scotland is to apply to these trusts) THIS DECLARATION OF TRUST is made on the date shown in Box A above The settlor is absolutely entitled to the policy specified in Box F above (the policy ) The settlor wishes to declare the trusts upon which the policy shall be held and to appoint those persons named in Box C as additional trustees of the policy, which office the additional trustees are willing to accept as signified by their participation in this Declaration 5
NOW THIS DEED WITNESSES as follows: Definitions 1 In this trust form: 1.1 the settlor means the person named in Box B above 1.2 the trustees means the settlor and the person or persons named in Box C above and/or the other trustee or trustees for the time being of these trusts 1.3 the trust fund means all benefits payable under the policy as a lump sum on the death of the settlor before attaining the age of 75 and any income or addition thereto and the investment and property from time to time representing the same 1.4 the other benefits means all other benefits, rights and privileges to which the settlor or anyone else is entitled pursuant to the policy which are not comprised in the trust fund 1.5 the beneficiaries means the persons objects or classes of persons or objects specified in Box D above 1.6 the protector means the person named in Box E above and/or the other protector for the time being of these trusts 1.7 corporate trustee means a trust corporation or other company authorised to undertake trust business 1.8 the trust period means the period of 80 years following the date shown in Box A (which period shall be the perpetuity period applicable to these trusts) or such shorter period as the trustees may at any time by deed or deeds appoint 1.9 the accumulation period means the period of 21 years from the date of the death of the settlor Governing law 2 The trusts declared below shall be governed by the laws of England and Wales and the construction effect and administration of these trusts shall be subject to the jurisdiction of and in accordance with English law PROVIDED THAT if the settlor has signed Box G above the trusts declared shall be governed by the laws of Scotland and administration of these trusts shall be subject to the jurisdiction of and in accordance with Scots law and construed accordingly and without prejudice to this generality the words in brackets in clause 1.8 shall be deleted Declaration of trust 3 The settlor hereby revokes any letter of authority previously signed in relation to the payment of annuity benefits in the event of the settlor s death before taking an annuity under the policy and declares that, with effect from the date of this Declaration, the trustees shall hold the policy as trustees on the trusts set out below Trust provisions 4 The trustees shall hold the capital and income of the trust fund upon the following trusts: 4.1 For the benefit of such one or more of the beneficiaries exclusive of the other or others of them in such shares or proportions if more than one and with and subject to such powers and provisions for their respective maintenance education or other benefit or for the accumulation of income (including administrative powers and provisions and discretionary trusts and powers to be executed or exercised by any person or persons whether or not being or including the trustees or any of them) and in such manner generally as the trustees (being at least two in number or a corporate trustee) and with the prior written consent of the protector (if any) and if required by this clause 4 but otherwise in their absolute discretion may by any deed or deeds revocable during the trust period or irrevocable appoint PROVIDED ALWAYS that no exercise of this power shall invalidate any prior payment or application of all or any part or parts of the capital or income of the trust fund made under any other power or powers conferred by these trusts or by law 4.2 Until and subject to and in default of any such appointment the following provisions shall apply to the income of the trust fund during the trust period: 4.2.1 The trustees shall pay or apply the income of the trust fund to or for the benefit of all or such one or more of the beneficiaries exclusive of the other or others of them in such shares if more than one and in such manner generally as the trustees shall in their absolute discretion from time to time think fit 4.2.2 Notwithstanding the provisions of sub-clause 4.2.1 above during the accumulation period the trustees may in their absolute discretion accumulate the income and shall hold any such accumulations as an accretion to capital 4.3 Notwithstanding the trusts powers and provisions declared and contained in this clause the trustees (being at least two in number or a corporate trustee) may with the prior written consent of the protector if any but otherwise in their absolute discretion: 4.3.1 pay or apply the whole or part of the capital of the trust fund to or for the benefit of all or such one or more of the beneficiaries in such shares if more than one and in such manner generally as they shall think fit 4.3.2 (subject to the application (if any) of the rule against perpetuities) pay or transfer any income or capital of the trust fund to the trustees of any other trust wherever established or existing under which all or any one or more of the beneficiaries is or are interested (whether or not all or such one or more of the beneficiaries is or are the only objects or persons interested or capable of benefiting under such other trust) if the trustees consider such payment or transfer to be for the benefit of all or such one or more of the beneficiaries 4.4 Subject as above at the end of the trust period the trustees shall hold the trust fund absolutely for such of the descendants of the settlor as are living at the end of the trust period and if more than one in equal shares and if none shall be living for such of the beneficiaries as are then living and if more than one in equal shares and if none shall be living for the last of them to die 6
5 The trustees shall hold the other benefits upon trust for the persons entitled to such benefits under the policy absolutely Powers of Settlor 6 Notwithstanding the trusts declared in this Declaration: 6.1 All powers conferred by the policy on the settlor or other person shall during the lifetime of the settlor or other person, be exercisable by the settlor or by that other person, without requiring the consent of any person. The settlor shall not, however, be entitled to elect that a sum representing the value of any accrued rights under the policy shall be applied as the premium or other consideration under any other policy unless: 6.1.2 such other policy is itself subject to trusts approved by the trustees; and 6.1.3 all interests under such trusts vest during the perpetuity period applicable to this Declaration 6.2 The settlor and other persons entitled to the other benefits shall have power to give a good receipt to the payer of the other benefits. Where a person entitled to the other benefits is a minor, the parent or guardian of that person shall have power to give a good receipt to the payer of the other benefits Trustees powers 7 The trustees shall have the following additional powers: 7.1 to apply any money to be invested in the purchase or acquisition (either alone or jointly with other persons) of such property, of whatever nature and wherever situate and whether of a wasting nature, involving liabilities or producing income or not, or in making such loans with or without security, as they think fit so that they shall have the same powers to apply money to be invested as if they were an absolute beneficial owner (and without any need to diversify investments) 7.2 to exchange property for other property on such terms as they think fit 7.3 to borrow or raise moneys for any purposes of these trusts (including investment) on such terms as the trustees in their absolute discretion think fit 7.4 to lend any capital moneys to any beneficiary either free of interest or on such terms relating to interest and to repayment and either with or without security as the trustees in their absolute discretion think fit 7.5 to accept as a good and sufficient discharge 7.5.1 a receipt given by any parent or guardian of any beneficiary who has not attained the age of legal capacity in respect of capital or income payable to or for the benefit of such beneficiary and 7.5.2 the receipt of the treasurer or other proper officer in respect of capital or income payable to a beneficiary which is a charity 7.6 to delegate in any way and to any extent to any persons or corporations (including a trustee) wherever situate or resident the exercise of any of the powers of the investment or management of the property for the time being forming part of the trust fund and to allow any such property to be registered in the name of or to be held by any person firm or corporation as nominee for the trustees and to hold any investments in certificated or uncertificated form 7.7 to appropriate property subject to the trusts of the trust fund to any of the beneficiaries in or towards the satisfaction of his or her interest in the trust fund 7.8 to add to the beneficiaries by deed or deeds made at any time or times before the expiry of the trust period such one or more objects or persons or classes of persons other than the settlor, the settlor s estate or the settlor s personal representatives as the trustees with the written consent of the protector (if any) may determine 7.9 to declare by deed or deeds at any time or times before the expiry of the trust period that a beneficiary shall be wholly or partially excluded from future benefit under the trusts of the trust fund declared PROVIDED THAT: 7.9.1 any such power shall not be capable of being exercised so as to derogate from any interest to which any object or person or class of persons has previously become indefeasibly entitled whether in possession or in reversion or otherwise 7.9.2 such power shall only be exercisable with the prior written consent of the protector (if any) 7.10 to acquire property jointly with another person (including a person anywhere in the world and including a trustee) and to merge property subject to the trusts of the trust fund with other property 7.11 to improve any property subject to the trusts of the trust fund as the trustees think fit and to refrain from repaying capital expenses out of income 7.12 to carry on a trade in any part of the world either alone or in partnership 7.13 to carry on the administration of these trusts in any part of the world as the trustees think fit 7.14 to pledge mortgage charge or grant security over any property subject to the trusts of the trust fund either as security for any liability the trustees may incur or to secure any money borrowed or to be borrowed by any of the beneficiaries entitled (or capable on the exercise of any power or discretion of becoming entitled) to any of the income which is or might be produced by the property in question 7.15 to refrain from enquiring into the conduct and management of any company in which they are interested (unless they are aware of circumstances which would require enquiry) and to refrain from procuring distribution from any company in which they are interested 7.16 at any time or times during the trust period by deed or deeds to revoke or vary any of the administrative provisions of these trusts or to add any further administrative provisions as the trustees may consider expedient for the purposes of these trusts 7
Conflicts of interest 8.1 8.1.1 For the purpose of this sub-clause 8.1 a person acts in a dual capacity if he or she is an individual who 8.1.1.1 takes part in a transaction both in his or her capacity as one of the trustees and in a personal capacity or 8.1.1.2 takes part in his or her capacity as one of the trustees in a transaction which involves a company of which he or she is a director or shareholder or a partnership of which he or she is a member 8.1.2 ANY transaction by the trustees which is otherwise authorised by these trusts or by the general law may take place even though one or more of them acts in a dual capacity but only if there is at the time at least one of them who does not act in a dual capacity and who is satisfied that its terms are fair to the trust 8.2 8.2.1 FOR THE purposes of this sub-clause 8.2 a person acts in a dual capacity if he or she takes part in a transaction both 8.2.1.1 as one of the trustees; and 8.2.1.2 in another fiduciary capacity as a trustee of another settlement or as someone s personal representative or executor 8.2.2 ANY transaction by the trustees which is otherwise authorised by these trusts or by the general law may take place even though one or more of them acts in a dual capacity 8.3 Subject to the above or as otherwise expressly provided any trustee may join or concur in exercising any power or discretion hereby or by law given to the trustees even though he or she may have a direct personal or other interest in the mode or result of exercising the power or discretion Apportionment 9.1 Income shall be treated as arising when it is received and shall not be apportioned and the Apportionment Act 1870 and any other enactment or rule of law about apportionment shall not apply 9.2 Expenditure shall be treated as arising when payable Trustees liability 10 No trustee shall be liable for any loss or damage to the capital or income of the trust fund which arises through his exercise in good faith of any power given by these trusts or by the general law and none who acts gratuitously shall be liable for any such loss or damage unless it arises through an act or omission of his own which amounts to conscious wrongdoing Trustees charging clauses 11.1 Any corporate trustee shall be entitled in addition to reimbursement of its proper expenses to remuneration for its services in accordance with its published terms and conditions for trust business in force from time to time 11.2 Any trustee acting as a trustee in a professional or business capacity other than the settlor shall be entitled to charge and be paid all usual professional or other charges for business done services rendered or time spent by him or her or his or her firm in the administration of these trusts including acts which a trustee not engaged in any profession or business could have done personally Protector 12.1 The protector for the time being shall have power in writing to nominate his or her successor or successors and any nomination may be expressed to be effective immediately or at the death of the protector or at any other date or event and any such nomination shall be revocable until it takes effect 12.2 Where there is no protector or none able or willing to act the trustees may in writing appoint a protector or protectors and pending such appointment the trustees may exercise their powers hereunder without obtaining the consent of the protector where that is required 12.3 Where there is a protector but he or she fails to respond to a request from the trustees within 30 days then the trustees may take silence to indicate consent and act accordingly Appointment of new or additional trustees 13.1 The power to appoint new or additional trustees shall be vested in the protector (if any) and if none in the settlor during his or her lifetime 13.2 A person may be appointed as a trustee even if neither resident nor domiciled nor carrying on business nor incorporated in the United Kingdom 13.3 The power of appointing additional trustees shall not be exercisable only because a trustee remains out of the United Kingdom for more than 12 months Removal of trustees 14 The protector shall have power to dismiss any trustee by giving 30 days notice in writing to such trustee as long as there shall be at least one corporate or two individual trustees remaining 8
Payment on instruction of trustees 15 The receipt of the trustees or any person or persons or organisation nominated in writing by the trustees jointly for the purpose of receiving payment of any moneys shall be an absolute discharge to the person making the payment for the payment of such moneys and that person shall thereafter be under no obligation or duty to be concerned with the application of such moneys Exclusion of settlor, settlor s estate and settlor s personal representatives 16 No discretion or power by this Declaration of trust or by law conferred on the trustees or any other person shall be exercised and no provision of this trust shall operate directly or indirectly so as to cause or permit any part of the trust fund or the income thereof to become lent to or in any way paid or payable to or applied or applicable for the benefit of the settlor, the settlor s estate or the settlor s personal representatives in any way or in any circumstances whatsoever Trusts of Land and Appointment of Trustees Act 17 Section 11 of the Trusts of Land and Appointment of Trustees Act 1996 shall not apply to these trusts 9
SIGNED and DELIVERED AS A DEED by the said Settlor s name Settlor s signature in the presence of Witness name Witness signature Witness address SIGNED and DELIVERED AS A DEED by the said Trustee s name Trustee s signature in the presence of Witness name Witness signature Witness address SIGNED and DELIVERED AS A DEED by the said Trustee s name Trustee s signature in the presence of Witness name Witness signature Witness address SIGNED and DELIVERED AS A DEED by the said Trustee s name Trustee s signature in the presence of Witness name Witness signature Witness address Disclaimer This document is produced by Clerical Medical as a standard form for use with its Retirement Annuity Contracts (Section 226) and Buy-Out Plans (Section 32) only. It is a document with legal significance which may affect the rights, obligations and tax positions of the settlor and the beneficiaries. You should not sign this form unless you understand its effects and are satisfied that it achieves your objectives. Your attention is drawn particularly to clause 10 which exempts the Trustees from liability in some circumstances. Clerical Medical strongly recommends that independent professional advice is sought if there are any doubts about the form or its consequences. 10
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www.clericalmedical.co.uk Clerical Medical is a trading name of Scottish Widows Limited. Scottish Widows Limited is registered in England and Wales No. 3196171. Registered office in the United Kingdom at 25 Gresham Street, London EC2V 7HN. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 181655. G1336/1215