Drawdown death benefits - income

rosivda

We have a situation which me and my Wife cant easily find a solution.

My Wifes Brother has recently passed away at the age of 53.

He has a drawdown plan smallish about 30K, tax free cash taken but no income,my Wife is the executor of his estate and has a mutual dependency with the brother to sort his affairs after his passing on.

We want to take the income to keep for his children until they are older. With have nothing to do with their Mother as she left my Wifes brother as soon as he became ill.

Is this possible, the pension company are saying it has to go to the childrens guardians, but in the Will he states his sister is to manage these funds for his children, he basically does not want his ex Wife to benefit from any of the fund.

Can anyone think of way round this ?

We want to try and not suffer the 55% tax charge on payment of a lump sum.

Thank for your help.

xylophone

I think that your wife as executor will have to discuss this with the Trustees.

jamesd

The will does not govern how pension trustees pay out money. They may consider its contents as part of their decision-making. An executor cannot direct them how to act but can make requests or suggestions.

If he gave the pension company an "expression of wishes" form they will initially use that to guide their decision. They may override that if circumstances have changed or if other things make it clear that they should do something different.

It is not surprising that they would want the guardian of the children to have control. However, it is possible to use the will and perhaps any guidance and reasons that he gave to the will preparer to demonstrate that another person is a safer one to control the money. It is also possible to describe the circumstances since diagnosis to demonstrate that she has not acted in a way that demonstrates that she is a trustworthy person to control the money.

Whoever gets control of the money, it would be to be held in trust for the benefit of the children. That's easy to abuse but there are potentially criminal legal penalties for gross abuse. But what is permitted is very broad indeed, including things like paying rent or mortgage to provide the children with a home and clothing and food and such.

A pension pot that has entered drawdown (including by just taking he 25% tax free lump sum) can be inherited by a spouse into a pension pot in their own name without the 55% tax charge provided the deceased is not over 75. If the children have unusual health problems, not just being normal children, say so because there might be another exception that applies. Otherwise the 55% tax charge is mandatory, including if paid to a spouse outside a pension in their name.

mania112

I'm slightly surprised the pension company said the money will go to the childrens guardian:

a) because their first step is usually to look at the 'expression of wish' on the pension,
b) then to look at the will,
c) and how did they know he had children?

And I can't think of a way to avoid the tax penalty for an unmarried man in Drawdown.

There is a way before death, but unfortunately, not after.