Death in Service 18-25 Trust

Cowdenboy

I wonder if anyone could clarify this for me. My sister recently passed away and I am executor. Her will also appoints me as Trustee in respect of her estate with her 19 year old son inheriting a residual cash sum - I am the Trustee for that until he is aged 25 as per the Will. Thus as I understand it this creates an 18-25 Trust. Over and above that there is a death in service benefit via her employers and the Trustees handling that have advised that they will pay that to myself outwith the Estate but in line with the Will arrangements thus I would administer it in Trust until my nephew is 25. My questions are who is the settlor re the Death in Service funds - is it still my sister? And can these funds just be rolled into the 18-25 Trust established by the Will? Thanks for any guidance.

Keep_pedalling

Can you give us the exact wording of the will (redact any personal detailed) with regard to the 25 year age clause? In the majority of cases such clauses are in reality unenforceable wishes because creating a discretionary trust or creating an alternative beneficiary if the child fails to reach the age of 25 creates a whole heap of difficulties for the trustees to deal with.

Cowdenboy

Thanks - 'I direct the Trustees to make over the whole residue of my estate equally between or among or wholly to such of my children as shall survive me and have attained or thereafter attain the age of 25 years, declaring that should any of my children predecease me or do so survive but fail to attain the said age leaving issue who shall survive me and attain the age of 18 years such issue shall take equally between or among them, per stirpes if more than one, the share or shares original and accrescing which the predeceasing parent would have taken by survival'.

There is just one child and no predeceased children.

There is a further 'Disaster Clause' - 'In the event of the complete failure of the foregoing provisions leaving any part or the whole of the residue of my estate undisposed of and which would otherwise fall into intestacy then I direct my Trustees to pay and make over such part or the whole of the residue of my estate undisposed of and remaining in their hands at the date or dates of such failure which would otherwise fall into intestacy to such of the following who survive the relevant date or dates of failure, namely: (that is followed by the names of my sister's two nephews) declaring that should any ultimate residue beneficiary under the relevant clause fail to survive the relevant date or dates of failure leaving issue who survive the relevant date or dates of failure, such issue shall take equally per stirpes the share or shares, original and accrescing, which his, her or their parent would have taken by survival

Keep_pedalling

Thanks, I think you need professional advice in dealing with the trust.

As for the pension, that falls outside her estate so is not covered by the will.

Cowdenboy

OK many thanks - I was leaning that way

poseidon1

https://forums.moneysavingexpert.com/discussion/6658194/death-in-service-18-25-trust

You say the trustees of the DIS benefits propose paying the death grant to you on the basis it be applied in accordance with the terms of your sister's will, the contents of which you evidently shared with them?

I am familiar with such arrangements.

It is correct the benefit does not form part of the original estate for IHT purposes, but it nonetheless rolls into the the 18 to 25 trust as additional settled property as requested by the benefit trustees.

It is my experience that depending on the quantum of the benefit arising, trustees have been known to create such settlements themselves to hold the trust funds until a suitable vesting age for the child concerned, but in the present case they have merely taken advantage of the trusts already established by the deceased's Will.

If you are uncertain that this was the express intent of the trustees, you should seek clarification, but certainly from what you have said and based on my past work in this area, this seems to be what was intended.

Going forward, I assume you have been advised with regard to your trustee income tax and CGT potential ( if funds are invested conventionally) during the currency of the trust period, together with potential for a small Inheritance tax exit charge at age 25 vesting age, if the collective trust fund value exceeds the prevailing nil rate band at that time. The death benefit derived settled funds are not exempt from this potential charge.

See HMRC general guidance below, if this has not yet been brought to your attention.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm42816#:~:text=Finance%20Act%202006%20introduced%20a,after%2022%20March%202006%20under:

Cowdenboy

Many thanks - yes that is what the Trustees agreed after viewing the Will. Thank you for your guidance on this matter