Discretionary trust for pension

economic

Hi


I would like to setup a discretionary trust to put my pension in after I pass away. The trustee would be my children who are also the beneficiaries.


The purpose of this is to manage inheritance tax.


Can anyone advice how I can set this up - cheap as possible pls!


thanks

SeniorSam

Normally your pensions would already be written in Trust. Ask your pension provider.

However, it is a simple matter the write your Will to create a Discretionary Trust on your death for whatever. I have done just this for my family.

Usually up to the nil rate band allowance (£325,000),but anything can be willed to a Trust.

I am a retired IFA who specialised in Wills, Trusts and Inheritance Tax mitigation strategies. I do not now offer advice, but my opinion on questions asked.

Sam

dunstonh

The purpose of this is to manage inheritance tax.

The vast majority of pensions are not included in the estate on death. So, why do you believe yours is?

Most pensions are held within a master trust and just require a nomination of beneficiary.

economic

Thanks for the quick replies.


Ok I will call my pension provider and ask if it is included in my estate after my death and if they are already written in a trust. Currently I believe the money will go to my partner rather than children, so I should ask the pension provider to change the beneficiary to my children? Will this then remove inheritance tax on my pension for my children?


SeniorSam im not sure what you mean by "write your Will to create a Discretionary Trust on your death for whatever". Seems interesting and would be grateful if you could elaborate or point me to an online resource with more info on this.


Cheers

kidmugsy

economic wrote: »

Ok I will call my pension provider and ask if it is included in my estate after my death and if they are already written in a trust. Currently I believe the money will go to my partner rather than children, so I should ask the pension provider to change the beneficiary to my children? Will this then remove inheritance tax on my pension for my children?

Yes.

The advantage of having the pension money paid into a DT would be (i) to avoid IHT on it when your children die, and (ii) to protect the money from divorce, bankruptcy, dementia, fraud, gormlessness, and so forth. My guess is that (ii) might be more important for many people than (i) judging by a seminar I once attended; the financial firm had expected the audience to be fascinated by IHT but most questions suggested that (ii), especially divorce, was what loomed largest for them.

economic

kidmugsy wrote: »

(i) to avoid IHT on it when your children die

I was more focused on IHT when me and my partner dies.


Would asking my pension provider to put the pension in a discretionary trust when I die with the beneficiaries being my children mean : 1) the pension money doesn't come into my estate when me or my partner dies 2) The money will go to my children as they are beneficiaries and will pay not tax ?

dunstonh

Ok I will call my pension provider and ask if it is included in my estate after my death and if they are already written in a trust.

Be aware that if you phone up and ask the question like that they may not give you the answer you are looking for. Remember that the telephone staff are going to be a bit more basic in knowledge than that. Ask them about making a nomination of beneficiary on the pension.

Will this then remove inheritance tax on my pension for my children?

There is no inheritance tax on most pensions on first death. Depending on how you take the benefits on death, there may be none on second or subsequent deaths either.

Is your pension a stakeholder pension, personal pension or SIPP? Or is it a defined benefit/final salary scheme?

mania112

Since they removed the 55% death tax in pensions, I wondered if they'd instead have the pot be included in IHT calculations? (so just reducing 55% to 40%?)

kidmugsy

economic wrote: »

Would asking my pension provider to put the pension in a discretionary trust when I die with the beneficiaries being my children mean : 1) the pension money doesn't come into my estate when me or my partner dies 2) The money will go to my children as they are beneficiaries and will pay not tax ?

(1) yes (2) They won't have to pay any IHT on it when the Trust receives it. The Trust will thereafter have to pay its own income tax and CGT. The way I'd do it would be to make the beneficiaries your children, and their children, and so on. If it's allowed, I'd also make self and partner beneficiaries, and certainly make self and partner trustees. This sort of thing is not for amateurs: to set it up you'd need to see a solicitor with specialist knowledge.

If your pension pot is small the expense might not be worth it; it might be better just to complete a letter of wishes for the pension provider, asking them to split the money equally between the children.

SeniorSam

Regarding your Will....... After the usual opening details of who you are and who you are appointing as executors and trustees (and do please ask them first as they may not want the job), a Will could go on to say the following.........

If my wife survives me by more than thirty days (miss that if not married) I give to my trustees such sum as at my death equals the maximum amount which could be given to them on these trusts without Inheritance Tax being payable in respect of this gift or such lesser sum as my trustees think fit ("the Trust Fund") to hold on the following discetionary trust: etc etc
This is a typical wording of a discretionary Trust that would normally hold the nil rate band allowance, or and I.O.U. for that amount.

The individual's wishes in the Will can be as detailed as they wish, putting in various items for individuals, or whatever wishes they may have, but it would be best to have a professional writing this on your behalf to ensure it is correctly worded.

The nomination of your pension is usually to your spouse, so you will ned to speak with the pension company as others have already explained to you.

If you do find some difficulty with the particular pension provider in changing the beneficiaries to who you wish, you will need to take it further as you are entitled to nominate whoever you wish.

Sam

economic

kidmugsy wrote: »

If your pension pot is small the expense might not be worth it; it might be better just to complete a letter of wishes for the pension provider, asking them to split the money equally between the children.

I think I may initially go with this option actually.


So just so its clear in my head.. I need to confirm that the pension is held in a trust, if it isn't I should ask the pension provider to do so. Then I ask the pension provider to make my children the beneficiaries (letter of wishes) of the pension so that when me and my partner dies it will not come under our estate and so my children will not have to pay any IHT on the pension money they get. I also do not need to create a discretionary trust.


Have I got it nailed?