Redirecting Death in Service and Pension Inheritance

Maidavale

Unfortunately my father passed away a couple of weeks ago and left myself and my mom. He was still in work at the time.

As part of his "estate" he leaves behind a death in service benefit payout and the balance on his contributory pension scheme (i.e. this has not been drawn down so is £140k sat in an account).

In principle these would go to my mom as nominated beneficiary however as my mom is already receiving quite a bit - she is keen for these to be directed to me given they are also inheritance tax free.

Has anyone else successfully re-directed the payouts for death in service and the balance of a pension? I assume if these come to me they would still technically sit outside my dad's estate and remain inheritance tax free?

The follow up question would be I assume these bypass the Executors account I have set up and would be paid directly into my own account?

Is there anything else I should be aware of?

Yorkshireman99

Maidavale wrote: »

Unfortunately my father passed away a couple of weeks ago and left myself and my mom. He was still in work at the time.

As part of his "estate" he leaves behind a death in service benefit payout and the balance on his contributory pension scheme (i.e. this has not been drawn down so is £140k sat in an account).

In principle these would go to my mom as nominated beneficiary however as my mom is already receiving quite a bit - she is keen for these to be directed to me given they are also inheritance tax free.

Has anyone else successfully re-directed the payouts for death in service and the balance of a pension? I assume if these come to me they would still technically sit outside my dad's estate and remain inheritance tax free?

The follow up question would be I assume these bypass the Executors account I have set up and would be paid directly into my own account?

Is there anything else I should be aware of?

You need to look at the detailed rules of the schemes to decide what is payable to whom and if it forms part of the estate. Is there a will and who are the beneficiaries? How big is the estate?

TcpnT

Assuming that the rules of the particular scheme would allow this it could only be done with the agreement of the trustees. The important point about most death in service lump sum benefits is that they are discretionary payments. What this means is that the trustees have the discretion to decide who the payment should go to. In almost all cases this will be the nominated beneficiary(ies). If they were not discretionary (ie guaranteed beforehand to go to one specific person) they would not be eligible for IHT exemption and would probably form part of the estate.

I am not so sure how the pension fund itself would be dealt with but I suspect once again that the trustees may have the power to alter the beneficiary under certain circumstances.

I believe that the only way to investigate the possibilities is to contact the trustees (probably via the scheme administrator), explain the circumstances an your mother's wishes and ask whether anything can be done.

Malthusian

Maidavale wrote: »

Has anyone else successfully re-directed the payouts for death in service and the balance of a pension?

The answer to that question is yes, but whether they will allow it in your particular case is another question. The trustees (of the pension scheme and of the death in service scheme respectively) have discretion and it depends on whether they are willing to override your father's expression of wish (even with the nominated beneficiary's permission) and whether the scheme rules allow it.

Your mother needs to ask them.

I assume if these come to me they would still technically sit outside my dad's estate and remain inheritance tax free?

Correct.

The follow up question would be I assume these bypass the Executors account I have set up and would be paid directly into my own account?

Correct. Nothing to do with the estate.

Is there anything else I should be aware of?

Is your mother receiving any means-tested state benefits? Is she in care or likely to go into care in the forseeable future?

Marcon

Yorkshireman99 wrote: »

You need to look at the detailed rules of the schemes to decide what is payable to whom and if it forms part of the estate. Is there a will and who are the beneficiaries? How big is the estate?

No, you don't. Neither the DIS lump sum or the refund of contributions will form part of the estate.

OP - your mother needs to contact the trustees and explain the position. They will then take her views into account when deciding who should receive the lump sum/contribution refund. If you haven't yet been contacted by them (probably via your father's HR department), don't be afraid to get in touch.

Yorkshireman99

Marcon wrote: »

No, you don't. Neither the DIS lump sum or the refund of contributions will form part of the estate.

OP - your mother needs to contact the trustees and explain the position. They will then take her views into account when deciding who should receive the lump sum/contribution refund. If you haven't yet been contacted by them (probably via your father's HR department), don't be afraid to get in touch.

That is a glib, unhelpful and foolish comment. It may be the most common but none of us know the scheme details. Please stop trying to score points rather than help people.

Savvy_Sue

Would a simpler suggestion be for Mum to receive these things, outside the estate, and set up a deed of variation for some of the other assets to pass directly to the OP?

There may be implications which make this a dumb idea, but equally it might be very sensible inheritance tax planning, if that's going to be an issue when mum dies.

Linton

Savvy_Sue wrote: »

Would a simpler suggestion be for Mum to receive these things, outside the estate, and set up a deed of variation for some of the other assets to pass directly to the OP?

There may be implications which make this a dumb idea, but equally it might be very sensible inheritance tax planning, if that's going to be an issue when mum dies.

I am not sure it would do any good. If any of Dads money is redirected to the OP it would reduce the £325K allowance that Mum would otherwise inherit. So if Mums estate is liable for IHT the net effect would be the same. At least if Mum makes the payment and survives 7 years the gift would be tax free.

Malthusian

Savvy_Sue wrote: »

There may be implications which make this a dumb idea, but equally it might be very sensible inheritance tax planning, if that's going to be an issue when mum dies.

As per Linton it's terrible inheritance tax planning, the worst of the three apparent solutions (1. persuade the trustees to redirect the discretionary payment, 2. mother receives the funds and gifts them, 3. DOV). No offence. Inheritance tax planning is difficult.

As Linton said, all it would achieve is to use up the mother's inherited nil rate band when there is no need at this stage. With a £140k pension fund plus an undisclosed DIS payout we're talking at least five figures, maybe six in unnecessary tax. (Unless of course mother is certain not to pay IHT, but you would assume the OP wouldn't need to ask the question in that case.)

The textbook scenario where DOVs are good for Inheritance Tax planning is where you bypass the children and leave to the grandchildren. Not to bypass the spouse and leave to the children. When you leave to the spouse they can take advantage of the spousal exemption, gift funds to the children and do their best not to die within 7 years. That doesn't apply when leaving funds to the children, so a DOV in favour of the grandchildren means the funds don't pass through two Inheritance Tax gates as they wend their way to the grandchildren.