Pension money - will we have to settle credit card debt?

millicent

My brother died 6 days after cashing in his pension at 55.

When we informed his bank of his death and closed his account his balance was showing as being overdrawn.

Approx 4 weeks later we received a cheque from his bank for the pension money (45k).

He has approx 12k in credit card debt, will we have to pay the credit cards out of the pension money?
Appreciate any advice on this.

NSG666

The executors of the estate need to gather in all monies owing and settle any debts before distributing any remaining balance so it sounds like a yes.

74jax

millicent said:

My brother died 6 days after cashing in his pension at 55.

When we informed his bank of his death and closed his account his balance was showing as being overdrawn.

Approx 4 weeks later we received a cheque from his bank for the pension money (45k).

He has approx 12k in credit card debt, will we have to pay the credit cards out of the pension money?
Appreciate any advice on this.

It doesn't have to come out of his pension money, if he had money elsewhere (stocks /shares / house /car /assets etc) as his bank was overdrawn it may be he doesn't have these, but worth mentioning.

The executor will pull together all his assets (any lump sums on death due?) and gather a list of all debts (bills due...). 

Remember the funeral is paid first, then debts in a particular order.

Once this is done the estate is distributed as per the Will or Intestacy Rules. 

There is an 'executor year' to gather everything to be settled, so informing all debtors about the death and for final invoices can take a few months anyway. 

millicent

Thank you for the replies.
There is no estate, no house to sell, no stocks or shares and he left no will.
The 45k pension money is all that there is and the fact that he has left two children we would like as much to go to them as possible, just not sure if pension payments counted towards the estate.

Flugelhorn

as I understand it with pensions, the lumps sums etc paid when you retire or opt to take them are your money and hence part of the estate, if there is any remaining money in the pension pot then it may not be part of the estate and where it goes is down to the pension provider (taking into account any wishes of your brother)

Keep_pedalling

A pension would not normally be counted as part of his estate, however it sounds like he withdrew the lot as a tax free lump sum which he would have been allowed to do if he had a terminal illness with under a year to live, so the payout is part of his estate.

With hindsight it was the wrong move as he never got the chance to spend any of it himself and part of it will have to be used to pay his creditors. 

Sea_Shell

Was his death expected or completely out of the blue?  As to have withdrawn his pension now seems like the wrong decision as it is now part of his estate and needs to now be used to settle debts.

If he'd left the pension untouched, it would have passed outside of his estate.  

Did he receive any advise to cash it in do you know?

millicent

His death was totally unexpected.
I believe that when he withdrew the pension on his 55th birthday 25% was tax free and he paid tax on the remaining 75% (which according to the pension paperwork has been paid directly to HMRC)

Sea_Shell

millicent said:

His death was totally unexpected.
I believe that when he withdrew the pension on his 55th birthday 25% was tax free and he paid tax on the remaining 75% (which according to the pension paperwork has been paid directly to HMRC)

I suppose you may never know if he'd had it explained to him that any withdrawals from a pension would then be treated as "assets" of his estate.   But then if his death was unexpected, he maybe wouldn't have worried about it.

Did he "need" the money for something specific?



My DH has just done exactly the same thing, but only with a small part of his pension (for tax efficient reasons).  But we did this with our eyes wide open to the potential consequences to his estate, should the worst happen.

RAS

Is he also intestate?

Keep_pedalling

millicent said:

His death was totally unexpected.
I believe that when he withdrew the pension on his 55th birthday 25% was tax free and he paid tax on the remaining 75% (which according to the pension paperwork has been paid directly to HMRC)

Sorry, I had assumed it was a terminal illness withdrawal, as what he actually did was very foolish. No escaping the fact that this forms part of his estate even though payment came through after his death.