Should pensions be included in a Will?

NedS

Hi,

Not sure if this is the best place to ask.

We are in the process of updating our Wills, and with the proposed changes to bring pensions into scope for IHT in 2027, I am wondering if pensions (SIPP's) should therefore be included within a person's Will?

Does anyone know if solicitor's are routinely including pensions in Wills now in preparation for 2027? I don't want to pay for a Will now and then have to pay again in 2027 to have it updated to include provision for our pensions.

I'd like to try to be as clear as possible about what we want before booking an appointment with our solicitor, although presumably they will also be able to advise us on this matter.

tacpot12

Most pensions are written in trust (which should protect them from IHT, won't if the changes planned for 2027 go ahead), which means that they don't become part of your estate when you die. The trustees of the pension will either follow your nomination as to who you want any remaining pension to pass to or they will use their discretion as to who they pass it to. So I don't see any reason that you would have to change your Will in 2027, unless you have some form of unusual pension that isn't written in trust.

If you buy an Annuity and is has a guarantee period and you want the money returned under the guarantee to go to someone in particular, you can mention this in your Will, or you may be able to nominate a particular beneficiary to receive it.

km1500

So what happens if the changes in 2027 go ahead?

now, if you say for example to your trustees I would like my pension pot on my death to go to my nephew then that pot is left to him and does not affect IHT for the rest of the estate

In 2027 would the trustees leave the pension to the nephew as  now ie free of IHT which would mean the other beneficiaries of the house, savings etc lose the 325k iht allowance as it is all used up by the pension, or would the allowance be pro-rataed across whole estate

Keep_pedalling

There are already things that form part of your estate for IHT purposes that you can’t leave in a will so I really don’t see why this should be any different. 

NedS

tacpot12 said:

Most pensions are written in trust (which should protect them from IHT, won't if the changes planned for 2027 go ahead), which means that they don't become part of your estate when you die. The trustees of the pension will either follow your nomination as to who you want any remaining pension to pass to or they will use their discretion as to who they pass it to. So I don't see any reason that you would have to change your Will in 2027, unless you have some form of unusual pension that isn't written in trust.

If you buy an Annuity and is has a guarantee period and you want the money returned under the guarantee to go to someone in particular, you can mention this in your Will, or you may be able to nominate a particular beneficiary to receive it.

I'm familiar with things as they currently stand. The reason for my question is if the proposed IHT changes go ahead in 2027 and pensions are brought into the estate (for IHT), then should they also be included in my Will now in preparation for this potential change? I don't want to have to update my Will again in 2 years time to include what should happen to my pension. I'm thinking specifically of SIPP's.

Are you saying that even if pensions are brought into the estate in 2027, because they are held in trust, the trustees will just follow any nominations regardless of what may be written in any Will so it's a non-issue?

What if there is a conflict between expressions in a Will (and it's executors) and nominations for a pension (and it's trustees)?

NedS

Keep_pedalling said:

There are already things that form part of your estate for IHT purposes that you can’t leave in a will so I really don’t see why this should be any different. 

Thank you. I'm not familiar - please can you give examples of such?

Edit: thinking about it - money that you have already gifted within the last 7 years?

Keep_pedalling

NedS said:

Keep_pedalling said:

There are already things that form part of your estate for IHT purposes that you can’t leave in a will so I really don’t see why this should be any different. 

Thank you. I'm not familiar - please can you give examples of such?

Edit: thinking about it - money that you have already gifted within the last 7 years?

That is one example, jointly held bank accounts is another one as is property held as joint tenants. 

tacpot12

As far as I know pensions aren't being brought into the estate, other than for IHT. So no money will come into the estate, so the Will doesn't need to consider it or deal with it. But we can't be certain what the legislation will say yet.

I doubt the Solicitor writing your Will will advise you to include a clause in case the pension money does come into you Will, because it's not clear whether the new law might affect how the executors can deal with it. 

I do know that my solicitor did not suggest including anything in my Will that I revised a couple of months ago. This was after the annoucement and we did discuss (very briefly) whether I wanted to leave the money in my SIPP to my partner, but it seemed too uncertain so we left it as was. (It's already left to my parter by way of a beneficiary nomination to the trustees.) 

You could do a codicil to avoid having to get the Will re-written. If the law does change in such a way that it requires Wills to be changed, there will be an upcry because of the cost and I'm not sure it's even necessary to achieve the government's aim of levying IHT on pensions. I guess it does raise the question as to how they can charge IHT on assets that aren't part of the estate, but it's just a matter of changing the law so that this is possible. 

NedS

Thank you both, makes perfect sense.