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Suppose two people buy a property together on a joint mortgage. A life or endowment policy may be taken out and charged as additional security for the repayment of the loan.
On the death of the assured, questions then may arise as to the beneficial ownership of the policy –- in other words, who gets the money?
The starting point is Smith [1993]. There, two unmarried people had bought a property as joint Ts, to live in together, using money borrowed from Abbey National. They took out two separate endowment policies, each providing life assurance on their individual lives for the amount covered by Abbey National. Each made it clear to Abbey National that each was to be responsible for the premiums on his/her own policy, although in fact the premiums were paid from a joint bank account. The policies were also assigned to Abbey National as security for the repayment of the loan.
When one of them died, a dispute arose as to the ownership of the policy money. The CA decided that the money belonged to the survivor, on the basis that it was clear from the circumstances that there was a common intention that the policy money should be used to pay off the mortgage. In other words, if one of them died before the mortgage was paid off, the survivor would be left not only with the title to the property (by survivorship) but with the property free of mortgage.
That approach was recently affirmed in Hyett [2003]. In summary:
- to claim a beneficial interest in a life policy under a constructive trust
requires a common intention;
- in practice, common intention may be inferred from the purpose for which
the policy was taken out;
- if a constructive trust cannot be established, then consider whether there
may be an argument in contract or in partnership;
- it can often be important to distinguish between the expected use of the
policies vis a vis the lender (ie to pay off the loan) and the intended ownership
as between the two borrowers.
The most important thing here is to be aware of the potential problems. Disputes as to the ownership of life policies are best avoided if the question of ownership is considered and documented when the policy is taken out. In short, conveyancers should address this issue with their clients and ensure that there is a written record of where the beneficial interest lies. Incidentally, simply nominating someone as an intended beneficiary will not always ensure that that person will obtain beneficial ownership; in practice, an express declaration of trust is better. For a useful introductory article see [2003] SJ 1297.
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