Death benefit freedoms mean that clients in a fully flexible scheme can pass on their pensions to anyone. Expressing a wish or nominating individuals can be problematic in some situations, so its good to understand your options around putting your death benefits into trust
(this is sometimes known as a spousal bypass trust). In short, the trust receives a lump sum death benefit from the
pension scheme and then the trustees administer it.
If you're under 75, the lump sum death benefit is usually paid to the trust income tax-free. If you're over 75 the special lump
sum death benefit charge will apply as a trust is non-individual.
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You do not wish for your spouse to receive the entire fund, remarry and then potentially pass to a new spouse.
Die before that new spouse and then the benefits end up with a completely different family. However, they may not simply want to nominate all family members at death.
Trustees can make decisions based on circumstances
at the time of payment instead.
You’re worried about your spouse remarrying, that marriage breaking down and the impact on your children.
Legislation states that there can’t be a pension sharing order on dependents’, nominees’ or successors’ drawdown.
You don’t want your children having access to a large amount of money.
A trust means that access to funds can be restricted and avoids the situation of an 18 year old taking a large fund in cash.
If a spouse is in dependants drawdown then the fund is considered by the local authority in the same way that it would consider the original members fund. If the money is in trust then it can’t be considered but the trustees can help to pay for the care if needed.
This can be complex if you are divorced or separated and you don’t want your ex-spouse to have control your child’s drawdown fund.
The trustees are responsible for the funds in the trust.
For most clients, death benefit freedoms give enough flexibility. However, for those with more complex situations a trust may give extra peace of mind. Benefits can also be split so a certain amount goes to a trust and the rest go directly to the beneficiaries and this could be a good solution in certain situations.