Sipp provider Mattioli Woods has defended offering a pension death benefit trust to a client, despite his IFA claiming it had ignored alternatives.
The Leicester-based company sent a letter to one of its clients suggesting they pay £750 plus Vat to set up the trust so he could avoid inheritance tax.
But the man’s adviser, Julian Pruggmayer of West Midlands-based Financial Risk Management, said the company had overlooked other options.
Mattioli Woods said it discussed the options with Mr Pruggmayer present and insisted it was up to the client, with his adviser, to come to a final decision.
Mr Pruggmayer said: “The law says that if you die and you have uncrystallised benefits in a pension scheme, they can be put across to whoever you so wish. You must transfer the benefits across within two years, and if you don’t there will be tax to pay.
“Let us suppose you have used your Sipp to buy commercial property, then you have got two years to sell that otherwise there is tax to be paid.
“That’s what Mattioli Woods has told clients, but that’s not entirely true because you can transfer the property from the name of your pension scheme to your widow’s name, but unfortunately they didn’t say that in their letter.
“They are selling you a one-off insurance policy.”
The letter from Mattioli Woods to its client said that since he had not yet drawn any benefits from his pension scheme the entire fund would potentially pass to his wife and be outside his estate for IHT purposes.
But if his wife drew these benefits as a tax-free lump sum, they would form part of her estate and be subject to IHT on her death.
The company has suggested passing the pension fund assets from the scheme to a trust which would provide his wife with an ongoing income.
Right of reply
A spokesman for Mattioli Woods said: “The pension scheme death benefit trust correspondence was issued to the client back in March 2014.
“Mattioli Woods attended the meeting along with the client’s IFA.
“The role that Mattioli Woods took was as the pension scheme administrator, trustee and technical consultant in partnership with the client’s adviser.
“We set out the benefits of a pension scheme death benefit trust and why we believed it appropriate, but it was for the adviser to advise his client whether it was appropriate for his circumstances.”
Specialist view
Sue Moore, technical manager at the Institute of Chartered Accountants in England and Wales, said: “There are all sorts of possible things that can be done, but if you die under the age of 75 your pension fund passes completely free of IHT to whoever you nominate, and that’s the same for Sipps.
“There is still a place for trusts, for example, they can be useful if you want to nominate who your fund passes to when the first beneficiary dies.”
Addendum: Letter from Mattioli Woods, post-publication
In response to an statements made by an adviser in the May 28 issue of Financial Adviser, and subsequently on FTAdviser.com, in the story entitled “Adviser criticises Mattioli Woods over death trust”, Mattioli Woods would like to address the claims that the company had acted in an ‘untruthful’ way in suggestions of how to deal with commercial property in a Sipp when considering the pension if a spouse passes away.
During the meeting with the client and his adviser, and in subsequent communications with that client, Mattioli Woods never stated that in the event of the client’s death there would a requirement to the sell commercial property held within the client’s pension scheme within the two year period. In addition, Mattioli Woods has never advised clients in isolation that a property held in a Sipp must be sold within two years of the date of a scheme member’s death.
Furthermore, Mattioli Woods did explain in writing that on death the assets could be paid without tax to the members beneficiaries although highlighted the merits for the adviser and client in considering the use of Pension Scheme Death Benefit Trust to retain control and flexibility over the distribution of assets and to help mitigate the potential for an IHT charge on the subsequent death of the client’s beneficiaries particularly his wife.
Murray Smith, sales and marketing director, Mattioli Woods
