By Lois Madden, Trainee Solicitor

A recent debate in the Court of Session (Shenken and another v Phoenix Life Limited [2015] CSOH 96) has examined the unique question of whether a foreign representative has title to obtain property held in trust on behalf of a deceased truster and trustee.

The pursuers raised an action against Phoenix Life Limited after the six figure proceeds of a life assurance policy were paid out to the personal representative of a Mr Pinder in Florida. Mr Pinder was Scottish and had created a Scottish trust deed before his move across the Atlantic. The deed contained a request that the policy was to be held on trust for the life of the truster and was to be made payable to the truster's children as named beneficiaries.

The history of the trust was complex and involved the assumption and resignation of various trustees, including the pursuers in this debate. In 2010 the position was that the truster remained as the sole trustee of his own trust, he died in Florida that year. The Floridian court appointed Mr Howard Schwartz, Mr Pinder's US lawyer, as a personal representative of Mr Pinder and on his application Phoenix Life Limited paid to him the proceeds of the policy.

Lord Tyre was asked to provide an opinion on whether Mr Schwartz had title to receive the proceeds. He commented that, following Mr Pinder's death, no trustees remained so the trust became what is known as a 'lapsed' trust. In this case this was resolved by a 2013 application to the Court by the pursuers to be assumed as trustees again. An alternative option would be for the executor of the last trustee to confirm to the trust property in order that it could be made over to the beneficiaries. A difficulty with this option is that the deceased must have had estate in Scotland to confirm to which a note with the lapsed trust property may be appended. If the deceased does not have such an estate the normal practice is to confirm to estate in Scotland which may be fictitious and of nominal value. Lord Tyre proffered the view that this solution is 'ad hoc problem solving' and does little to rationalise and modernise the procedure for obtaining confirmation in Scotland. A further statutory remedy is that a beneficiary can apply to have the property of a lapsed trust made over to them.

Lord Tyre then examined section 11 of the Revenue Act 1884 where it is stated:

'Notwithstanding any provision to the contrary…the production of a grant of representation from a court in the UK by probate or letter of administration or confirmation shall be necessary to establish the right to recover or received any part of the personal estate and effects of any deceased person situated in the UK.

Provided that where a policy of life assurance has been effected with any insurance company but a person who shall die domiciled elsewhere than in the UK, the production of a grant of representation from a court in the United Kingdom shall not be necessary to establish the right to receive the money payable in respect of such policy.'

Counsel for the defender argued that it made no difference that the policy was held in trust, property rights must always be vested in a person and a duly appointed personal representative had a right to pursue a claim of the deceased trustee, albeit that after the event he may have to make over the proceeds to a newly appointed trustee or beneficiary. The pursuers argued that the proceeds did not 'belong' to Mr Pinder in the sense referred to in the Succession Scotland Act and therefore were not property which would vest in his executor on confirmation. They were of the view that S.11 of the 1884 Act, which allows insurance proceeds to be paid without confirmation, applied only where the deceased had a beneficial interest in such proceeds.

Lord Tyre provided the opinion that Mr Schwartz did not have title in any capacity to receive the proceeds. He agreed with the pursuers' argument that section 11 has no application to trust property, stating that confirmation is necessary to establish that a foreign personal representative has a right to receive any of the deceased's moveable property, the exception in the second paragraph can only apply when the deceased is to directly benefit from any insurance proceeds. It does not apply to property held in a fiduciary capacity for another's eventual benefit.

Summary

This case usefully confirms that a foreign personal representative would not be placed in a favourable position when compared to that of an executor resident in Scotland and appointed by a Scottish-domiciled testator. The opinion demonstrates the complexity which can arise when a trust becomes 'lapsed' and highlights the importance of trustees and beneficiaries obtaining legal advice on the remedies available to them in this circumstance.



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