Discretionary Lump Sum Payments

siremoon

We've had a couple of bereavements in the family recently. Both of the deceased had pension plans and were drawing pensions at the time of their deaths. My wife is the executor of both estates and has also been dealing with advising everyone who needs to know about the deaths. After advising the pension providers and sending them various documents she has been sent discretionary lump sum payments by the trustees of both pension schemes. The accompanying letters in both cases say “the payment does not form part of the estate and is therefore not subject to inheritance tax or income tax in your hands”.

The issue we have is that we don’t quite know what we are expected to do with the money and I haven’t been able to find any guidance on the internet. We've asked the pension providers and they couldn't or wouldn't tell us anything.

a. Should my wife distribute the money in accordance with the provisions of the will for cash assets?
b. Should my wife decide for herself how she should distribute it?
c. Something else?

Thanks

Finst

How odd! The legal responsibility for deciding who should receive the lump sums sits with the Trustees of the pension schemes (which is why it does not form part of the estate).

If the trustees have decided that your wife is the most appropriate recipient (eg because the deceased had nominated her as their preferred recipient), the money is hers to keep. From what you say, that isn't necessarily the case - do the letters from the trustees say anything about where the money should go or their reasons for sending it to your wife?

It would be unusual for the trustees to attempt to transfer their decision making onto the executor of the will - the will has no legal power over the money as it is not part of the estate.

siremoon

As far as we are aware there were no expression of wish forms registered by either of the deceased.

There are actually three pensions involved (in two different schemes) and for each a discretionary lump sum has been paid to my wife. The letter with the smallest payment says "This is intended to help with any financial requirements such as funeral costs". The letters with the two larger payments make no reference as to what it is for. Before they paid it we did provide them with the complete details of the surviving family members and the wills.

There was also a fourth pension plan where the pot had not been exchanged for an annuity. In that case the trustees divided the pot equally amongst the children of the deceased.

xylophone

Have a look at
this

http://www3.hants.gov.uk/pensions/lgps/forms-lgps/death-grant-expression-of-wish-form.htm

The BTPS EoW information also makes it clear that the Trustees might decide to pass the death grant to the executor or administrators of an estate, even if (though one gathers this would be unusual) an expression of wishes had been completed.

It would seem that as the deceased persons had not completed an expression of wishes, the Trustees have paid the money to the executor and in effect have left the distribution of the cash to the executor's discretion.

That is to say, the executor is landed with the job that the Trustees might have done - see http://www.out-law.com/en/topics/pensions/general-pensions/death-benefits/

and must have regard to the same considerations? She might decide to be guided by the will of the deceased?

You might want to ask the Trustees for copies of the EoW information for the particular schemes?

atush

I would think, if your wife is a child of the deceased the money is hers to keep.

But in a post above you say there were several children and I would think she should split it between them?

siremoon

Thanks for the thoughts.