Expression of Wish - unsure how to allocate

dfarry

Having signed up to my companies Legal and General company pension, I also get a life assurance benefit (I think this is provided directly by the company)

On my death (whilst still employed and a contributing member) my dependents will get a cash lump sum equal to 4 times my salary, plus a further 4x lump sum that can be used to buy a annuity. This is in addition to the lump sum paid by L&G from the pension account value.

I am a little unsure how this might work, the plan paperwork states that a trustee (who would that be) decides who should get what based on my Expression of Wish (I have a form to complete). Apparently under current law this would be free from inheritance tax (I need to look in the tax forum about that).

I am not married but my partner and I are as good as.... have been together for years, have two children together and everything is split down the middle... The kids are 5 and 7 and my partner doesn't work currently work so is fully dependent upon me for cash. This seems like quite a crucial thing to get right but I can't decide whethr I should split some of the cash between my two children where it would presumably be held until they were 18.....

Obviously at 35 I'd rather not die over the next 30 years and instead have a very happy relaxing and comfortable retirement. :j

glenbois

You need to talk it through with someone whom you trust and value their iopinion the lump sum and income from the 4 time salary is hardly going to keep your partner and kids to the lifestyle they have accustomed to - in which case getting adequate life assurance through perhaps a family income benefit plan would then leave you with aan easier decision regarding the cpital lumps sums available fromt he pension scheme and to whom to allocate the lump sums to e.g. if you had security of knowing that if you died between now and when the kids are 24 (assuming university) and your spouse was going to receive an income of £1500 per month - how easy would it be for you to then decide that the kids can get half each or partner half children 25% each etc...

Random thoughts but I think what's making the decision hard is that you need to know exactly how your family is financially effected if you were to die. Knowing the answer to this then allows you to plan the future.

Get an IFA to go throuigh this with you but before you go see the IFA ask yourself what debts would you like to have paid off and what income requirements your family has.

Debt_Free_Chick

I'm a pensions manager and secretary to a board of pension scheme trustees. I often have to put together details of deaths, so the trustees can decide how to distribute the lump sum.

In a situation like this, I would suggest to the trustees that - unless there is evidence to the contrary - they should presume that the surviving parent will always have the interests of their children as a priority. So they should not presume that children need to have money "in their own name". For young children, this presents a problem as they can't get at the money without an adult's signature anyway. I suggest that trustees simply pay the money to the surviving parent who will surely use the money in the best way to benefit the family - including the children.

In addition, where a parent has died - particularly the breadwinner - then the surviving parent needs money, just to keep the family housed, fed & clothed. So putting money into trust until the children are 18 is not ideal. There's little point in having the family struggle to put shoes on the kids feet, simply so the child can go out and buy a Ferrari when they reach 18!! :eek:

So ... in my view, you should simply put your partner on the form. Although it sounds like a lot of money, 4 times salary paid tax-free, is only 5 or 6 years salary (with no inflation). So it would only give your partner the equivalent of 5 or 6 years of your current income - and he would probably not qualify for a lot of benefits, in view of the payout.

If you want your kids to have some money when they're 18, you should discuss this with your partner. But I remember, you want him to be able to maintain the family household and not scrimp and save simply to give the kids a "windfall" in the future.

Hope this helps with your deliberations.

Regards

dfarry

Thanks for all the comments.....food for thought...It does seem as though just allocating the cash 100% to my partner would be the best, certainly at this stage - it can be changed at any time if I wish. In the even of my death at least half of one of the lumps sums would be need to pay of our current mortgage (though that will clearly decrease over the next 25 years)...I'm a geeza BTW DFC hehe

Debt_Free_Chick

dfarry wrote:

I am a little unsure how this might work, the plan paperwork states that a trustee (who would that be) decides who should get what based on my Expression of Wish (I have a form to complete). Apparently under current law this would be free from inheritance tax (I need to look in the tax forum about that).

A pension scheme is established under a "trust deed" and the payment of a lump sum on death, is made by the trustees using a "discretionary" power.

In legal speak, this actually means that no-one has an absolute right to the payout and the trustees have to decide who to pay it to (see later). In addition, the money should be paid directly to the person they decide upon. As the money does not go into to your estate, it is ignored for inheritance tax purposes. Inheritance tax only applies to money and assets in your estate.

Some people get concerned about the fact that the trustees decide who gets the money. There is no need to be worried about this. Trustees must act in the interest of the beneficiaries (people who could receive money from the pension scheme). So they have to do the best thing for those people who could receive the money. They will look at your personal circumstances to see who in your family & relatives would need the money most. Where you are the main breadwinner and there are children involved, they would have no need to look outside that family unit - it's obvious where the money should go.

If you were separated from your partner, then things get more difficult. However, they would look to provide for the children and the money may well go to their legal gardian, with instructions that the money is to be used for the benefit of the children. Unusually, the money may go into a trust for the children - but there are practical difficulties with this e.g. who would the trustees be?

So .. you need not be concerned about the inheritance tax position. Provided the money is paid directly to another person, it will not be included in your estate. And the trustees will look to pay the money to the person who will be caring & providing for the children.

Hope this helps

Debt_Free_Chick

dfarry wrote:

In the even of my death at least half of one of the lumps sums would be need to pay of our current mortgage (though that will clearly decrease over the next 25 years)

Perhaps you should consider a simple insurance policy to do this. If you're young and in good health, it's cheap! And it's a good way of making sure your partner is financially secure, should the worst happen. You also might want to consider doing a joint policy, so the mortgage is paid off if anything happens to her. Think of the changes you would have to make to your job/lifestyle if you needed full time care for the kids. You would either have to change your job - and probably earn less. Or pay for full time care .. expensive :eek:

...I'm a geeza BTW DFC hehe

Oooops! Sorry

dfarry

Thanks...... insurance... as in perhaps an endowment that will still pay a lump sum and also has a life element to it..If you mean just life assurance, yes it is cheap.... for 25 years, joint lifes via Cavendish it is only £7 per month... I mayu still do this but in effect my work life cover is free and I really need to start paying into a pension somewhere.We do have an endowment currently that has around 13 years (originally 25) left to run - this provides joint life cover from our previous mortgage (£51300) - it's no longer needed to pay of the mortgage (now repayment) so the plan assuming we both luive until 2019 is to use the lump sum from that to pay off about half our new mortgage (or use it for our retirement).