Royal Skandia Manx Law Nominations

The standard Royal Skandia beneficiary nomination request form (‘the nomination’), which will be used in most markets (there are two forms which differ slightly from the form we refer to in this article) enables the policyholder to nominate one or more beneficiaries to either benefit or obtain the associated contractual rights of a life assurance contract or capital redemption contract (‘the policy’) on the transfer date, this can be on:

• Option 1 the policyholder's death (‘the relevant policyholder’); or
• Option 2 the death of the last life assured to die (‘the relevant life assured’).  This is an option for life assurance contracts only.

The policyholder chooses which of these options is suitable for their needs by ticking the appropriate box on the nomination.  Where neither of these boxes is selected the nomination will be returned to the policyholder to choose which option should apply.
The policyholder retains control of the policy and can continue to benefit from their policy during their lifetime.

The effect of the nomination is to put the beneficiary in the same position, contractually, as the policyholder by recognising the rights of the beneficiary through the Isle of Man Contracts (Rights of Third Parties) Act 2001 (‘the Act’).

The Act formally recognises the rights of a person or legal entity, who is not party to a contract in his own right, to enforce a term of the policy if either the contract expressly provides that the party may or the term of the contract purports to confer a benefit on them.  When a nomination is received and accepted by Royal Skandia the terms of the contract are amended to ensure the appropriate wording relating to the nomination are included within the terms.

Royal Skandia’s nomination is for use with Royal Skandia’s contracts which are governed by Isle of Man law.  The Manx Courts will legally recognise the rights of the beneficiary regardless of where the policyholder, who created the nomination, and the beneficiary reside at the time of creating the nomination or in the future provided there was a clear intention, at the time the nomination was created, to allow the named beneficiaries to enforce the rights of the contract from the transfer date. 

Where a Royal Skandia contract is not subject to Manx law, for example Singaporean law, the appropriate nomination form should be used and the contract will revert to the policyholder.

The Royal Skandia nomination is created by the policyholder, or where there is more than one policyholder by both provided the policyholder is 18 years of age at the time of its’ creation.  On the transfer date the policy or the right to be paid the death benefit (for life assurance contracts only) will be transferred to the primary beneficiaries in the proportions indicated.  If one or more of the primary beneficiaries do not survive the transfer date, their share shall be distributed between the other primary beneficiaries who are alive on the transfer date and if more than one on a pro rata basis.

If no primary beneficiaries survive the transfer date, the policy will be transferred to the secondary beneficiaries in the share indicated.  If on the transfer date there are no primary or secondary beneficiaries alive then the nomination will come to an end and the policy will revert to the policyholder.

Any number of primary and secondary beneficiaries can be appointed provided they are individuals, a company or trustee.

Unless the policy comes to an end on the transfer date, the policy will continue subject to the same terms and conditions which applied when the policy commenced. This will continue until the policy comes to an end due to the death of the last life assured (life assurance contract only) or, matures (capital redemption contract only), or is fully surrendered, or lapses without value.

Option 1 Where the transfer date is the date the relevant policyholder dies

The policyholder can be an individual but cannot be a company or a trustee. 

Let’s consider Mr and Mrs Robinson who currently reside in Hong Kong. They both own a Royal Skandia policy which comes to an end when the last life assured dies. The lives assured are Mr and Mrs Robinson and their two children. Mr Robinson has completed a nomination so that their two children are named as primary beneficiaries and will benefit in equal shares.  They also include a registered charity as a  secondary beneficiary should their children pre-decease them.

During Mr and Mrs Robinsons lifetime they can still enjoy the benefits of the policy for example, they can take encashments from the policy for their own benefit.  All contractual rights vested in them as legal owners of the policy continue until the last of them to die.  At this time the nomination will take effect and the two children, as named primary beneficiaries, will become the policyholders. As the new legal owners they will own the policy jointly and be responsible for exercising all policy transactions together; however, they can only benefit up to the amount to which they are entitled, in this example 50% each.  If one or more of the beneficiaries are under the age of 18 on transfer date then the parent or guardian of the beneficiary must act on their behalf until the beneficiary reaches the age of 18.

Isle of Man Grant of Probate will not have to be obtained on the last death of Mr and Mrs Robinson because by virtue of the rights conferred on the beneficiary, through the Act, the policy automatically transfers to their children from the transfer date.

What happens if the policy comes to an end because the last life assured has died?

Where the policy comes to an end because all lives assured have died but at least one policyholder is still alive, for example where the policy is taken out on a life of another basis, the benefits of the policy will not accrue to the beneficiary of the nomination.  Instead, the policy will come to an end and the death benefit will be paid to the surviving policyholder.

Where the policy comes to an end because all lives assured have died and the last life assured to die is also the last surviving policyholder, for example where the policy is taken out on an own life basis, the benefits from the policy and the associated contractual rights will accrue to the beneficiary of the nomination. 

Option 2 Where the transfer date is the date the relevant life assured dies

The policyholder can be an individual or a company but cannot be a trustee. 

Let’s consider XYZ company who are based in the Dubai.  The company owns a Royal Skandia policy which comes to and end when the sole life assured, John Griffin the Managing Director of XYZ company, dies. They have completed a nomination so that John’s wife, Catherine, is named as the primary beneficiary.  They also include John’s children as secondary beneficiaries in equal shares.

XYZ company enjoy the benefits of the policy for example, they can take encashments from the policy for their own benefit.  All contractual rights vested in them as legal owners of the policy continue until John dies.  At this time the nomination will take effect and Catherine, the named primary beneficiary, will accrue the benefits of the policy.  The policy will come to an end and the death benefit will be paid to her.  If Catherine pre-deceased John then the death benefits would accrue to their children, in equal shares.

What happens if the policy is set up on a life of another basis where the policyholder is an individual?

The contractual rights of the policy will transfer to the personal representatives of the policyholder, when the policyholder dies.  The nomination will remain in force and the primary beneficiary will receive the death benefit from the policy when the relevant life assured dies, unless the policy has been fully encashed or lapses without value.

If the relevant life assured predeceases the policyholder then the nomination will take effect and the named primary beneficiary will accrue the benefits of the policy.  If no primary beneficiaries survive the transfer date, the policy will be transferred to the secondary beneficiaries in the share indicated.  If on the transfer date there are no primary or secondary beneficiaries alive then the nomination will come to an end and the policy will revert to the policyholder.

What happens if the policy is set up on an own life basis?

Where the policy comes to end because all lives assured have died and the last life assured is also the last surviving policyholder, the death benefits will be paid to the beneficiary.

If any primary beneficiary dies whilst the nomination is in force the deceased’s primary beneficiary share will automatically vest in the surviving primary beneficiary.  If there is more than one surviving beneficiary then the deceased’s share transfers to the surviving primary beneficiaries in equal shares. However, if there are no further primary beneficiaries then the deceased’s share will automatically vest with the secondary beneficiaries, if any.  If there are no secondary beneficiaries then the nomination will come to an end and the policy will revert to the policyholder.

The policyholder could create a further nomination whilst the policy is in force.

If a beneficiary dies after the transfer date then the deceased beneficiary’s estate would be entitled up to the deceased’s beneficiary’s entitlement of the policy.  For example, Mr and Mrs Robinsons two children became policyholders after the death of their parents.  They were each beneficially entitled to 50% of the policy proceeds.  The oldest child dies unexpectedly, shortly after his parents.  Because he was beneficially entitled to 50%, absolutely, his share will be held for the benefit of his estate.  The surviving child, who is the sole surviving policyholder, must request surrender in order for the deceased child’s estate to receive the deceased child’s share. Royal Skandia can pay directly to the estate of the deceased child upon receipt of a Grant of Probate for the deceased child.

Yes, the Royal Skandia nomination is a revocable nomination.  This means that it is not fixed and can be changed or brought to an end by the policyholder during their lifetime.  The notice of revocation must be received in writing by Royal Skandia before the death of the policyholder. However, the nomination is automatically revoked if:

• the policy is assigned, transferring legal or beneficial ownership of the policy;
• the policy is used as security for a loan or where a 3rd party interest is noted on the policy;
• a new nomination is received and accepted by Royal Skandia;
• the policy is fully surrendered;the policy matures (capital redemption contracts only).  If the policy has been extended beyond its original maturity date, the nomination will be revoked on the new maturity date; or
• the last named beneficiary dies whilst the policyholder is still alive.

For example, if Mr and Mrs Robinson have another child in the future they could execute a new nomination form to add the newly born child as a beneficiary.  To add beneficiaries the new nomination should include the names of all Mr and Mrs Robinsons children as well as the percentage share each child is entitled to.  The completion of the new nomination form and receipt by Royal Skandia will revoke the previous nomination.

Royal Skandia have a number of financial planning solutions which may be suitable for your clients current and future needs, the Manx law nomination is one such solution.  Royal Skandia has an extensive trust range that includes:

• the absolute trust
• the loan trust
• the discounted gift trust
• the retained interest trust, and
• two discretionary trusts - one that allows the settlor to benefit, and one that does not.