Pensions - and estate planning generally - are easily overlooked when making a will. People’s pensions will normally be their largest fund and careful planning via a will can help to protect it from unnecessary inheritance tax liabilities.
Pension Death Benefits
Most defined contribution and personal pensions pay a lump sum if you die before drawing or crystallising your pension. Most pensions allow you to choose who should receive the lump sum. However, the most tax-efficient way to make the payment is to a specially-created trust (often known as a “Death Benefit Trust” or “Spousal By-Pass Trust”) from which your partner (and/or anyone else you choose) can benefit.
Use of a Death Benefit Trust can achieve significant tax and estate planning advantages including:
- Saving Inheritance Tax on your surviving partner’s death;
- Avoiding any payment being assessed for care home fees for your surviving partner;
- Avoiding any lump sum payment being seized by creditors if your surviving partner becomes insolvent;
- Preventing any payment passing to your surviving partner’s subsequent partner if he or she remarries;
- Protecting the lump sum and providing a flexible structure for the benefit of minor children;
- Offering protection for vulnerable beneficiaries or those who are not financially mature; and
- Flexibility to take into account future tax changes or changes in your family’s circumstances.
For more information on how you can protect your pension and other assets, please contact
John Rouse.
First published in autumn 2011 edition of NewsBrief
