If you are a member of a registered pension scheme then on your death, your pension trustees may make a lump sum payment from the pension trust. Since the changes to the pension legislation on 29 September 2014 you can decide to retain the pension within their wrapper or make a payment out of the lump sum to your spouse or to a Trust.
Whilst you may be happy for this to pass to your spouse in principal, you may wish to look further into the future and think about what would happen if these monies were then still in their estate on their death and inheritance tax was to apply.
Instead you could choose to create a Trust, often called a Spousal Bypass Trust and request that your pension trustees exercise their discretion to pay any lump sum to it after your death. You would be able to include beneficiaries as you wish such as your spouse, children, grandchildren etc. but the trustees would have the power to decide as and when payments should be made to them. This is called a Discretionary Trust.
The normal issues regarding the creation of a Trust should be considered such as the overall taxation position (including inheritance tax charges, income tax and capital gains tax) and the powers of the trustees. We will be able to consider this question with you when discussing the idea of the deed.
Before entering into such arrangement it must be checked that the pension scheme trustees have the necessary powers to make such payments to a Trust and also that the nomination is in an appropriate form. We can liaise with your pension advisers to ensure this is the case.
In selecting whether a Spousal Bypass Trust is appropriate for clients rather than retaining the pension, factors such as client age, and whether the client’s pension is ‘crystallised’ should be considered; in conjunction with the client’s tax position and life expectancy.
If you would like to find out more about Spousal Bypass Trusts, please speak to a member of our team.
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