Are our basic thoughts right regarding SIPP of father, who died age 72?

morgmonster

Hi, firstly I want to say that we are going to engage an IFA to assist mum with the entirety of Dad's estate once we are a bit closer to probate being granted, and we have spoken to a couple over the phone, but both IFAs suggested waiting a bit longer to have a sit down discussion so we have a more concrete idea of her assets and so we can act before the advice goes out of date. Right now we are trying to decide what to do about Dad's SIPP and I don't personally think we need paid-for advice about this as it seems pretty clear, I've done a fair amount of research but just would like a sense check!

My dad died in the autumn aged 72. He had a large SIPP held with HL, over £1m. He was highly numerate and extremely organised with his finances but went from living a very fit healthy life with a cancer diagnosis, to "there's nothing more we can do" extremely quickly so there are some loose ends and decisions we have to make. He didn't have beneficiaries set up online, so since his will left everything to Mum, we assumed that he also wished his SIPP to be left to Mum, so filled in the forms accordingly (yes we probably should have sought advice for that). However HL sent a letter saying they found a form from 2008 where he expressed the wish for it to be split 90/10/10 between Mum, me and my sibling so they are happy for do that if she approves, and on the phone they indicated that she could request a change to the % to be put forward to the trustees.

Dad's estate included S&S ISAs as well as the SIPP, plus the house and some other things. We have to complete IHT400 due to some foreign shares just over the limit, although no tax will be due as everything is left to Mum (both life UK residents). However when Mum dies, we will face a significant IHT bill. Mum is keen to give gifts to us and the grandchildren, along with her siblings/ etc while she is still alive in the hope she lives 7 years (a v good chance, I think), but we're now realising that with the SIPP we have a chance for money to be passed to me and my brother without IHT or income tax, and Mum is very keen to do this, as it would be lifechanging for us with young families, but makes little difference to her.

So are we correct in thinking:

-If Mum chooses to keep Dad's SIPP as a drawdown once she inherits, it converts to a beneficiary / inherited drawdown and the monthly income for mum is free of income tax?

-My brother and I can take our % as a lump sum and this is free of income tax?

-If Mum dies after April 27 & the remainder of the inherited SIPP is then inherited by me/brother, the value will be subject to 40% IHT if estate is over the nil rate bands (it definitely will be) . I know all the details around IHT and pensions are not decided / published yet but I have found nothing to indicate that an inherited SIPP would be treated differently for IHT than an 'original' SIPP

-If she dies after her 75th birthday (2029) then her inherited SIPP will be subject to 40% IHT as above AND my brother and I will pay income tax at our marginal rate on it whether we take it in drawdown or as a lump sum? so could be effective 64% reduced compared to if we take it now?

So our conclusions are:

-It would be better for us to route more of the SIPP around mum's estate and directly to us

-Mum should spend from the SIPP first before hitting the ISAs (obv the IFA will go into detail on this)

One of the IFAs did say in our call, kind of off the record, that he would definitely increase the childrens' share and called it a 'no-brainer', but I just want to be sure there isn't a massive pitfall we are missing. I have run some basic forecasts just using Excel and even with the highest costs assumed for 30 years+ my Mum will not run out of money even ignoring the SIPP entirely. We are very lucky and have to give massive props and love to my amazing Dad who grew up in a working class family, this was all self made. Although of course just being an adult living in the home counties and having a house in the 90s/2000s helped hugely, but he was always very into intense and detailed research and never bought into hype or trends :-)

Thank you!

DRS1

Just a few thoughts

When you say assuming the highest costs are you including care home fees? They can be frighteningly high.

The SIPP Trustees may want to be convinced that your mother is not being put under undue pressure to "give away" the SIPP.

That aside it does seem a good idea to bypass your mother with the SIPP if she doesn't need it.

Albermarle

It all looks pretty logical, but as above it will hinge to a large extent on the decisions of the HL trustees.

One thing they will look at is the will. Although pension pots are not included in wills, they can be used as a guideline where there is any 'dispute' over the pension beneficiaries.

They may also look at the wider family situation.

That is not to say they will not agree to your requests, but they are duty bound to explore the situation properly.

morgmonster

https://forums.moneysavingexpert.com/discussion/comment/81876879#Comment_81876879

Thanks! Yes, for my forecasts I went up to £120,000 for care fees (we all live in the home counties) at current levels. And also relatively high expenses before care being needed, as she is very keen to see as much of the world as she can before she isn't able to any more! First I went very basic and assumed no inflation in expenses but also no growth in the assets; then did some basic adjustments for inflation in expenses and assumed 5% growth in the S&S based assets, thought about trying to do something more sophisticated as I do love a spreadsheet but decided my time was better spent elsewhere (namely doing Dad's tax returns!).

I think the biggest change we would go is 40/30/30. My brother and I would feel uncomfortable being given any more. And the tax free nature of drawdown income for her is beneficial as she will be on the cusp of being a higher rate tax payer in 26/27 due to receiving survivor pensions from two DB pensions Dad was receiving. If they say no then so be it. 10% will still be a huge deal for us!

DRS1

One small point I just noticed - the 2008 nomination was "90/10/10" which adds up to 110%. I guess the first number should be 80.

morgmonster

https://forums.moneysavingexpert.com/discussion/comment/81877001#Comment_81877001

Yes you're right, it was 80! well spotted!