Work "Death in service" insurance
Discussion
Hi, im divorced with 2 boys, 12 and 10. If i snuff it the policy is over £300K and leaves 100% my ex so i need to update!
I can leave % proportions to various people so:
Leave 10% to ex to help out
Rest (45/45) to my kids but i dont want them to have it until adults
Dont want to leave to my parents - they live abroad and are in their 80s so not a long term solution
I can trust my best mate - hes a high earner so unsure of tax implications to pass it on/invest for them
Do i need to see a solicitor or combine with a will?
Any advise cheers
I can leave % proportions to various people so:
Leave 10% to ex to help out
Rest (45/45) to my kids but i dont want them to have it until adults
Dont want to leave to my parents - they live abroad and are in their 80s so not a long term solution
I can trust my best mate - hes a high earner so unsure of tax implications to pass it on/invest for them
Do i need to see a solicitor or combine with a will?
Any advise cheers
Probably best off having a chat over email with the trustees of the DISB. Its not a solicitor, or a will thing. You express your wishes, and then the trustee has a huge amount of leeway in executing those wishes - its not part of your estate, its a payment directly to the beneficiaries because you died.
randlemarcus said:
Probably best off having a chat over email with the trustees of the DISB. Its not a solicitor, or a will thing. You express your wishes, and then the trustee has a huge amount of leeway in executing those wishes - its not part of your estate, its a payment directly to the beneficiaries because you died.
^^ this.1.Company sponsored death in service benefit (DISB) becomes payable when an employee dies in service. DISB will end when employment ends if you leave, or when you reach your normal retirement age as set by the company. If you are absent from work for a prolonged period for, say, sickness or an accident, provided you remain an employee the DISB will be in place.
2.DISB is legally set up in a special plan with trustees appointed for its management and administration. Typically, it sits alongside but separate from a company sponsored pension plan.
3.The DISB is payable under a discretionary trust. The discretion applies to who will get the benefit, not whether or not it is payable. The benefit is paid by the trustees who must decide who will receive the DISB, and if more than one beneficiary how the total DISB will be shared amongst them. It will be very exceptionally paid into the deceased’s estate. The whole purpose of the benefit being paid under a discretionary trust is to avoid completely any inheritance tax. It also enables DISB to be paid promptly because there’s no such thing as probate to obtain beforehand.
4.When death occurs, the trustees must decide who gets what and in what shares. The decision is entirely theirs. Usually, the employee would have completed a “expression of wish form or a “nomination form” some time earlier in which the employee “expresses” and “nominates” who and in what shares he wishes the trustees to pay the DISB in the event of his death. It’s essential that the employee completes a new form when his circumstances change in any material way. Unfortunately, many employees forget to do this which often leads to confusion and delays when the trustees must decide how to pay the DISB. Note the form cannot be binding on the trustees: if it was, liability for inheritance tax will arise.
5.Ideally, and good trustees practice, is when death occurs they take into account the employee’s circumstances at the time of death, and not at an earlier date eg when the employee completed the last form. The trustees should try and obtain a complete list of all potential beneficiaries, a copy of the latest expression/nomination form, and then decide who gets what. This is why it’s important to keep the form up to date: old forms often do not tie in with later circumstances and if the trustees simply followed what the form says they will probably upset the beneficiaries at the time of death who may want to challenge the decision. Note that challenges very rarely succeed even if they go through the Courts.
6.The OP suggested that as he has children he should “nominate” his best mate in the expectation that the mate will use the DISB he receives to financially look after the children. IMHO, this is not a good idea: he may not be a good mate at the time of death, he may not be so capable at that time, the DISB will be his and there’s no way that he can be bound to use it for the children so he could use it entirely for his own purposes. He is not likely to be a beneficiary in terms of the rules of the DISB.
7.When the trustees do decide to pay all or part of the DISB to children who are under age 21, it is often the case that the DISB will be paid into a separate trust for each child. These new trusts will often be set up by the DISB Plan trustees with a major bank as the new trustee. You must then rely on the bank to manage the trust in a responsible way.
8.I suggest that you have a chat with the DISB Plan trustees to see what their typical practice is when death occurs where there are children in place.
9.I do not see the need for you to obtain any legal advice from a solicitor. All he/she can do is tell you their opinion whereas it is the DISB Plan’s current trustees’ opinions and typical practice that are likely to be more important to you.
10. As I mentioned earlier, DISB ends when employment ceases. At that time it may be difficult and expensive to replace on a personal, private basis. Relying on company sponsored DISB, with no personal life cover in place, is something to give serious consideration to.
R.
2.DISB is legally set up in a special plan with trustees appointed for its management and administration. Typically, it sits alongside but separate from a company sponsored pension plan.
3.The DISB is payable under a discretionary trust. The discretion applies to who will get the benefit, not whether or not it is payable. The benefit is paid by the trustees who must decide who will receive the DISB, and if more than one beneficiary how the total DISB will be shared amongst them. It will be very exceptionally paid into the deceased’s estate. The whole purpose of the benefit being paid under a discretionary trust is to avoid completely any inheritance tax. It also enables DISB to be paid promptly because there’s no such thing as probate to obtain beforehand.
4.When death occurs, the trustees must decide who gets what and in what shares. The decision is entirely theirs. Usually, the employee would have completed a “expression of wish form or a “nomination form” some time earlier in which the employee “expresses” and “nominates” who and in what shares he wishes the trustees to pay the DISB in the event of his death. It’s essential that the employee completes a new form when his circumstances change in any material way. Unfortunately, many employees forget to do this which often leads to confusion and delays when the trustees must decide how to pay the DISB. Note the form cannot be binding on the trustees: if it was, liability for inheritance tax will arise.
5.Ideally, and good trustees practice, is when death occurs they take into account the employee’s circumstances at the time of death, and not at an earlier date eg when the employee completed the last form. The trustees should try and obtain a complete list of all potential beneficiaries, a copy of the latest expression/nomination form, and then decide who gets what. This is why it’s important to keep the form up to date: old forms often do not tie in with later circumstances and if the trustees simply followed what the form says they will probably upset the beneficiaries at the time of death who may want to challenge the decision. Note that challenges very rarely succeed even if they go through the Courts.
6.The OP suggested that as he has children he should “nominate” his best mate in the expectation that the mate will use the DISB he receives to financially look after the children. IMHO, this is not a good idea: he may not be a good mate at the time of death, he may not be so capable at that time, the DISB will be his and there’s no way that he can be bound to use it for the children so he could use it entirely for his own purposes. He is not likely to be a beneficiary in terms of the rules of the DISB.
7.When the trustees do decide to pay all or part of the DISB to children who are under age 21, it is often the case that the DISB will be paid into a separate trust for each child. These new trusts will often be set up by the DISB Plan trustees with a major bank as the new trustee. You must then rely on the bank to manage the trust in a responsible way.
8.I suggest that you have a chat with the DISB Plan trustees to see what their typical practice is when death occurs where there are children in place.
9.I do not see the need for you to obtain any legal advice from a solicitor. All he/she can do is tell you their opinion whereas it is the DISB Plan’s current trustees’ opinions and typical practice that are likely to be more important to you.
10. As I mentioned earlier, DISB ends when employment ceases. At that time it may be difficult and expensive to replace on a personal, private basis. Relying on company sponsored DISB, with no personal life cover in place, is something to give serious consideration to.
R.
need to update nomination form and include a letter if going away from norm with regards wishes (and see solicitor and update will)
if friend or relative would have guardian ship of children if you die then it should work but if ex currently has and would continue to have responsibility for children its hard to see trustees not allocating a larger proportion directly to ex and not sure they can impose restrictions (also worth updating from/letter as children get older as then the responsibility element until they are 18 diminishes)
if your assets left in will then easier to set aside money to go in trust for children and have other relative/close friend oversee it. Trusts would be taxed separately but complicated set up and costly to administer with lots of restrictions for friend/relative who would be trustee,
unless substantial own assets not sure if possible/economic to set up viable way for it to happen (and make plans with solicitor and explain in letter with nomination form) and the trustees may not agree to it anyway.
also low chance of it happening, If other assets and a current partner you could have partner on nomination form and more to kids in will on trust etc
if friend or relative would have guardian ship of children if you die then it should work but if ex currently has and would continue to have responsibility for children its hard to see trustees not allocating a larger proportion directly to ex and not sure they can impose restrictions (also worth updating from/letter as children get older as then the responsibility element until they are 18 diminishes)
if your assets left in will then easier to set aside money to go in trust for children and have other relative/close friend oversee it. Trusts would be taxed separately but complicated set up and costly to administer with lots of restrictions for friend/relative who would be trustee,
unless substantial own assets not sure if possible/economic to set up viable way for it to happen (and make plans with solicitor and explain in letter with nomination form) and the trustees may not agree to it anyway.
also low chance of it happening, If other assets and a current partner you could have partner on nomination form and more to kids in will on trust etc
As ever, the devil is in the detail. Death in service schemes are still subject to rules of registered pension schemes - if the total value of your death in service policy plus the cumulative value of your pension exceeds £1,000,000, a tax charge could be payable on the excess. Check if you have an 'excepted’ life policy.. the amount paid out is not be tested against your Lifetime Allowance and therefore your estate has no exposure to any tax liability.
For most people, it doesn't really matter, but as a principle, it is extant. So, if you're negotiating with a future employer and you're already, or likely to exceed the lifetime allowance, then the nuance should figure prominently in your contract negotiations. One point to bear in mind, the option should not be used to expressly avoid being tested against the Lifetime Allowance, although (as far as I am aware) the principle has not been tested by HMRC.
If in doubt, check, and take early steps to mitigate.
For most people, it doesn't really matter, but as a principle, it is extant. So, if you're negotiating with a future employer and you're already, or likely to exceed the lifetime allowance, then the nuance should figure prominently in your contract negotiations. One point to bear in mind, the option should not be used to expressly avoid being tested against the Lifetime Allowance, although (as far as I am aware) the principle has not been tested by HMRC.
If in doubt, check, and take early steps to mitigate.
hi all, thanks for your time and effort explaining - alot of really good info here!
Ive had a chat with HR manager and ties in with the info above - Aviva are the underwriters and my company the trustees. They recently had a situation where a 7yo was receiving the insurance payout and would only pay it into a special trustee bank account set up for the child so no chance an ex can get it or taxman will be involved!
Ive updated the expression form - both my lads get 50:50. Hopefully people will read this post and get updating their own forms
Ive had a chat with HR manager and ties in with the info above - Aviva are the underwriters and my company the trustees. They recently had a situation where a 7yo was receiving the insurance payout and would only pay it into a special trustee bank account set up for the child so no chance an ex can get it or taxman will be involved!
Ive updated the expression form - both my lads get 50:50. Hopefully people will read this post and get updating their own forms
Gassing Station | Finance | Top of Page | What's New | My Stuff