Trusts carry out a number of different functions. One of the main benefits is ensuring the control of assets remain in the family bloodline, which we call bloodline protection.
There are a number of issues that could mean assets are passed outside of the family when that was never the original intention of passing assets to children and grandchildren.
Remarriage after the death of a bloodline relative
These and other issues are covered in our video – Is Estate planning more important than inheritance tax planning.
Pension protection trusts are mainly set up to provide this bloodline protection.
If you die before age 75 under current rules, the beneficiaries of your pension fund would be entitled to the value of the pension fund free of income tax. It is taxable for income tax on the beneficiary if you die after age 75.
Similarly, money passed from a person’s pension death benefits if they died pre 75 can be passed to the beneficiaries free of income tax. If however they were just passed to a widow and that widow dies post 75 the benefits will be taxable and so a Pension Trust could be beneficial.
Normally people allocate the money from their pension to their spouse and children on death. However, it may be more tax-efficient to pass the money to the children rather than the spouse and in some case the grandchildren thus using non taxpayers annual tax allowances. This may not be possible in such a flexible manner using a standard death benefits Trust from a pension.
With a Pension Trust it is possible for a surviving spouse to borrow money interest free from the trust which is repayable on death thus reducing their estate for IHT purposes.
The whole area of pension death benefits into Trusts are very complex and so experienced advice is essential.
If you have a pension plan valued in excess of £200,000, this planning would be beneficial, so please call us for a free no obligation consultation.