Section 6 — Creating a Trust Under MWP

Section 6 of the MWP Act, 1874 provides the legal mechanism for creating a statutory trust when a married man purchases a life insurance policy for the benefit of his wife and/or children. The trust is created automatically by operation of law the moment the policy is expressed on its face to be for the benefit of the wife or children. Unlike a private trust under the Indian Trusts Act, 1882, which requires a separate trust deed and registration, the MWP statutory trust is created by the mere endorsement on the policy document and the execution of a simple trust deed (Form A or Form B as applicable). The trust deed under Section 6 typically follows two formats: Form A is used when the policyholder himself acts as the trustee, while Form B is used when a separate third-party trustee is appointed. The trust deed specifies the beneficiaries, the proportion of benefit allocation among them, and the conditions under which the trust operates. Once the trust is created, the policy effectively ceases to be the property of the policyholder and becomes the property of the trust. The policyholder continues to pay premiums, but the proceeds belong exclusively to the named beneficiaries upon maturity or death.

Section 6 of the MWP Act, 1874 (Full Text): "A policy of insurance effected by any married man on his own life, and expressed on the face of it to be for the benefit of his wife, or of his wife and children, or any of them, shall enure and be deemed to be a trust for the benefit of his wife, or of his wife and children, or any of them, according to the interest so expressed, and shall not, so long as any object of the trust remains, be subject to the control of the husband, or to his creditors, or form part of his estate." Proviso to Section 6: "If it shall be proved that the policy was effected and the premiums paid with intent to defraud creditors of the husband, the creditors shall be entitled to receive out of the moneys payable under the policy, a sum equal to the premiums so paid." This proviso is the only exception — if it can be proven that the policy was bought specifically to defraud existing creditors, they can recover only the premiums paid (not the sum assured). The burden of proof lies entirely on the creditors.

Life Insurance Corporation of India vs. Smt. G. M. Channabasamma (AIR 1991 SC 392, Supreme Court of India) — In this landmark judgement, the Supreme Court examined the nature of the trust created under Section 6 of the MWP Act. The Court held that the trust created under Section 6 is a statutory trust and comes into existence automatically when the policy is expressed to be for the benefit of the wife and/or children. The Court clarified that no separate trust registration is required, and the trust is valid even if the trust deed contains minor procedural irregularities. The key observation was that the spirit and intent of the legislation is to protect the family of the insured, and courts must interpret the provisions liberally in favour of the beneficiaries.

• Section 6 of the MWP Act creates a statutory trust — no registration required under the Registration Act. • Form A = policyholder is trustee; Form B = separate trustee appointed (recommended). • Trust is created automatically when the policy is expressed to be for the benefit of wife/children. • The trust is irrevocable — no changes to beneficiaries, no surrender, no loans without trustee consent. • Stamp duty on trust deed varies by state (₹50 to ₹500). • Proviso to Section 6: If policy is taken to defraud creditors, they can recover only the premiums paid (not the sum assured). • Trustee has a fiduciary duty to act in the best interest of beneficiaries. • If all beneficiaries predecease the policyholder, the trust ceases and the policy reverts to the estate. • LIC vs. G. M. Channabasamma (1991 SC) — trust is valid even with minor procedural irregularities. • Always execute the trust deed on the same date as the proposal form.