‘Expression of wish’ forms should be completed and passed to pension trustees if people wish to pass on their pension fund, financial planning firm Towry has said, stating it gives people more flexibility rather than passing it on via a will or trust.
It is likely that more people will be passing on pensions, even through generations, thanks to the new flexibilities. Last September, chancellor George Osborne announced that pensions can be passed on free of tax.
If a person dies under age 75 no tax will be payable even when a beneficiary withdraws income or takes the fund as a lump sum, with marginal rate taxes applying to withdrawals when death occurs after age 75.
Ian Dyall, head of estate planning and Andy James, head of retirement planning at Towry, noted that passing on pensions should be done through completing an ‘expression of wish’ form, which should be sent to your pension scheme’s trustees, rather than through a will.
“The advantage of this is that it is much easier and cheaper to amend an expression of wish form, if required, than it is to change a will (or a trust).
“You should review your expression of wish forms regularly to ensure they remain in line with your requirements, ideally at least annually and also when either your own circumstances or those of your proposed beneficiaries change.”
An option which may be considered when using this ‘expression of wish’ form is nominating a trust, as opposed to one or more individuals.
“If you choose this option, setting up a suitable trust will involve legal advice and therefore costs, so you will need to be clear as to any advantages this may offer in your own personal circumstances.”
They added that once the funds are received by the trust, they are in control of the trustees.
“The trustees will be those put in place by you to manage and distribute the funds in line with your wishes. This can be very valuable where there would otherwise be concerns about passing funds on directly as the control would then completely rest with the individual receiving the pension.
“Where you would like to ensure that, for example, children from an earlier marriage benefit after the death of a spouse, or where there are potential issues with an impending divorce or bankruptcy of a child, leaving control with trustees can ensure the funds find their way to the right people at the right time.
“If you are likely to be leaving pension funds to others in future, then getting advice at an early stage will be the best course of action.”
Earlier in the month, a number of financial advisers said they are paying more attention to tax planning as a direct result of the pension freedoms, with Alistair Cunningham, financial planning director at Wingate Financial Planning, urging people to consider using trusts to mitigate inheritance tax.