The aim of this article is to provide a guide to Singaporean law nominations, as well as addressing a range of questions which may arise.
The Singapore Insurance (Amendment) Act 2009 (“the Act”) introduced a new framework for beneficiaries to be nominated in respect of Singapore life assurance contract proceeds for sole policy owner contracts. Prior to this, the Act did not contain any provisions for the nomination of beneficiaries and instead owners of such contracts (policy owners) primarily relied on s73 Conveyancing and Law of Property Act which enabled policy owners to create an irrevocable statutory trust.
Sole policy owners now have the choice of whether or not to make nominations in Singapore. If they do choose to nominate they then have the option of making either a revocable nomination or an irrevocable (trust) nomination. However, it should be remembered that there is also still the availability of Old Mutual International’s trust range which is a further option to be considered. This trust range may also cater for jointly owned life assurance contracts.
Irrevocable (trust) nominations:
An irrevocable nomination will create a Singapore statutory trust in favour of the beneficiaries. This means that the policy owner will lose all rights and control over the contract concerned. The policy owner cannot make any changes at all to the contract without consent being obtained from all of the beneficiaries. As a result of this, such a nomination proves to be extremely inflexible and will create additional administration since every beneficiary will have to complete the prescribed form to consent to any changes.
Suppose after creating an irrevocable nomination of which the policy owner’s children were appointed as beneficiaries that one of them becomes unruly. If they are not prepared to consent to changing the irrevocable nomination then there is nothing that the policy owner can do and the terms of the nomination will stand.
Since a Singapore statutory trust is created it is also important to consider what this structure entails. The Act makes it clear that at least one independent trustee who is not the policy owner will have to be appointed at all times under such a nomination.
There also does not appear to be any provision in the Singapore legislation to allow such nominations to be revoked where a beneficiary has died and the deceased beneficiary’s entitlement of the benefits will pass via his estate.
Roy decides that he wishes to create an irrevocable nomination. He completes the Trust (Irrevocable) Nomination form provided by Old Mutual International and decides that his wife, Vera, son, Mark and daughter, Katie, will be appointed as nominated beneficiaries. Sadly Mark dies. Since Roy created an irrevocable nomination this means that Mark’s share of the policy proceeds will pass in accordance with his Will and therefore as a result pass to Mark’s wife, Lynn. Roy would have wanted Mark’s share to be distributed between Vera and Katie.
A revocable nomination, on the other hand, does not create a statutory trust and the policy owner retains full rights and ownership over the contract. This allows the policy owner to retain control if he or she does not want to commit to using an irrevocable nomination since he or she can unilaterally revoke the nomination in the future if they so wish. In this way the policy owner can still control the ultimate destination of the contract benefits.
However, the revocable nomination only deals with death benefits and does not transfer all rights as the irrevocable nomination does.
Using the above example, had Roy created a revocable nomination then upon Mark’s death rather than his share passing to Lynn, it would instead have been divided between Vera and Katie. This is in line with Roy’s intention.
Old Mutual International
Another option which is available is to use any Old Mutual International trust. Since this type of vehicle is already commonly used it is a familiar structure. If a discretionary trust was chosen, for example, this would be a far more flexible trust option than the irrevocable nomination.
If, rather than creating a nomination, Roy had created an Old Mutual International discretionary trust then none of Vera, Mark or Katie would have an absolute entitlement to any of the trust assets. Instead the trustees could use their discretion as to who would inherit and in which shares based upon their circumstances.
It is not possible to use Old Mutual International Trust Company with an Old Mutual International trust in Singapore. This is because trust service providers are regulated in Singapore and Old Mutual International Trust Company is not a Singapore regulated trust service provider.
How do the nominations operate?
Singapore nominations can be made at any time during the contract period. Policy owners must be aged 18 or over to create a valid nomination. Nominations can be created by an individual who takes out a contract on their own life. The contract must provide death benefits and it must be issued by a registered insurer and be subject to Singaporean law.
Singaporean legislation has introduced prescribed wording to deal with nominations. Old Mutual International has used this prescribed wording in their nomination forms and these must be completed in order to declare a nomination. 100% of the contract proceeds must be nominated in one of the forms. Once completed the form must be sent to Old Mutual International in order for them to be noted on the system and be valid.
The following forms are available from Old Mutual International:
- Trust (Irrevocable) Nomination
- Revocation of Trust (Irrevocable) Nomination
- Appointment or Revocation of Appointment of a Trustee
- Revocable Nomination
- Revocation of Revocation Nomination
- Revocation of Revocable Nomination via a Will
As stated above, under Singaporean law, the Act now makes provision for two types of nomination which are explained below.
Irrevocable (trust) nominations:
- Only the policy owner’s spouse and/or children can be nominated beneficiaries under an irrevocable nomination.
- All benefits from the contract will be paid to the nominated beneficiaries.
- The nomination can be revoked providing that the written consent of all beneficiaries has been obtained. If one of the beneficiaries is a minor, then his or her parent or guardian will need to provide consent on their behalf.
- Where a beneficiary dies before policy owner the deceased beneficiary’s share of the benefits paid under the contract will pass via his estate.
- Any legal entity can be a nominated beneficiary under a revocable nomination.
- The policy owner can change or revoke a nomination at any time without needing the consent of the beneficiaries.
- A revocable nomination can be made by Will.
- Only the death benefits pay out to the nominated beneficiaries under a revocable nomination. All of the lifetime benefits are paid to the policy owner.
- If a beneficiary predeceases the policy owner his or her share is proportionately distributed amongst the remaining beneficiaries. If all beneficiaries predecease the policy owner then nomination automatically revoked.
It is not mandatory to have a nomination and therefore if a nomination is not created then it will mean that any proceeds payable upon death will be paid to any 'proper claimant' up to the aggregate amount which is currently SIN$150,000. Any amount in excess of this will then be distributed either in accordance with the deceased’s Will or the intestacy provisions that apply.
If the policy owner leaves Singapore then it depends upon the country of residence and the local laws as to how the nomination will be treated. For example, if the policy owner moves to a country where there is forced heir ship in terms of succession laws, there may be a dispute if it is viewed that a contract and nomination was created purely to avoid such succession laws. Providing that there is no dispute then Old Mutual International will pay out the proceeds in accordance with either the nomination that has been created or Will or other succession laws.
How are payments made under a Singapore nomination?
S61 of the Insurance Amendment Act 2009 deals with when payments can be made from the proceeds of a life assurance contract and states that provided the nomination has not been revoked and providing the insurer has received notification of the nomination then payments can be made as follows:
- In respect of an irrevocable nomination, any payment can be made to the trustees without requiring a Grant of Probate or Letters of Administration. However, if the policy owner is the same person as the trustee then payment cannot be made to the trustees and instead can be made to the nominated beneficiaries up to their proportion.
- In relation to a revocable nomination, payment can be made to the nominated beneficiaries without a Grant of Probate or Letters of Administration and it is not necessary to pay to the trustees.
- Where a nomination has been made by a Will then payment can be made to the executors without Grant of Probate/Letters of Administration.
- Where there is not a Will or nomination dealing with the policy then one payment can be made to any ‘Proper Claimant’ without Grant of Probate/Letters of Administration up to the aggregate amount which is currently SIN$150,000 which will then be apportioned. Where the death benefit exceeds SIN$ 150,000, it will be paid to the beneficiaries of the estate, or in accordance with the intestacy rules, if applicable, following receipt of Grant of Probate or Letters of Administration.
It is clear that policy owners now have a wider choice in terms of distributing contract proceeds. However, there are a number of considerations to take into account when choosing which nomination, if any, should be created.
If there is no nomination then a Grant of Probate may need to be obtained unless the payment is in accordance with the position stated above. By creating a nomination it is likely that this process will be avoided.
An irrevocable nomination may be appropriate where the policy owner only wants to benefit their spouse and their children without any flexibility and does not envisage the need for any change. If there are any uncertainties then possibly this type of nomination is not appropriate.
A revocable nomination might be suitable where the policy owner wishes to retain some control and allow flexibility or may need access to the capital. This type of nomination may not be suitable, however, where the policy owner requires the legal certainty of an irrevocable nomination or where he or she wants to ensure that the policy proceeds do not form part of their estate for succession tax purposes.