(7) half siblings of parents of the deceased – half uncles and half aunts (and their descendants);
(8) the Crown
Death and pensions
For pensions, succession is usually managed by nominating beneficiaries through completing an expression of wish form. Should no nomination have been made then the pension trustees or administrators have the discretion to decide how the pension should be paid.
Where the administrators are unable to determine a suitable beneficiary, then they will have no choice other than to pay the lump sum back into the individual’s estate. This would leave the monies liable for inheritance tax and result in the fund being distributed in accordance with the new intestacy rules, if there is no will or no reference to these benefits in the terms of the will (likely to be the case in this situation).
The greater freedom in how pension benefits can be passed on to beneficiaries from April 2015 has created new opportunities to use a pension to manage the practicalities of succession planning. Many will be more comfortable with managing the size of their estates by increasing pension contributions, in order to pass on the value of their estate in a more tax-efficient manner.
Under the new rules taking effect from April next year, pension beneficiaries have the option to receive a lump sum paid either tax free (if the pensioner died before age 75) or less tax of 45 per cent (for tax year 2015/16) or at the beneficiaries’ own marginal rate (from 2016/17 onwards). With the new, lower tax rates being applied (crystallised benefits are currently taxed at 55 per cent), pensions will become an important tool for tax planning.
The age-75 threshold should also be considered when deciding on how benefits could be paid. It may be possible that some beneficiaries may be higher rate taxpayers, whereas others may pay no tax at all. Such discrepancies could be managed by ensuring a greater proportion of the fund is paid to grandchildren, for example, than their parents, when completing a revised nomination form, shortly before the client reaches age 75.
The new rules only apply to lump sums, meaning that income payment options (such as dependant’s annuities) will continue to work within the same tax regime. Although many questions remain unanswered, especially relating to areas such as dependency definitions (for example, will charities or trusts fit this definition?) and what flexibility and allowance rules will be applicable to the beneficiaries themselves. Pensions are looking more attractive as a tax and inheritance planning tool.
However, the new pensions tax freedom does not remove the need for further benefit protection. For example, spousal bypass trusts will retain a useful role to ensure that the member retains full control over the choice of beneficiaries after his death. For example, the member may wish for his spouse to receive payments from the fund (which is permissible, as long as the Bypass Trust’s appointed Trustees are in agreement) but wishes to ensure that the fund is paid to his children, preventing the spouse from redistributing the fund elsewhere (for example, to new family members, following re-marriage).
