Death in service

I am looking into an estate whereby the deceased was entitled to a bank pension lump sum payment. In addition, they are to receive a death in service payment. One is operated by the pension company and the other by the life assurance company. Both payable under a discretion.

The deceased was unmarried and died intestate leaving a minor child. The child will therefore receive the estate on statutory legacy. The surviving parent wants to extend the age upon which they take the funds beyond 18. As I understand it the bereaved minors trust will not assist here. And an 18-25 trust has to be created by will not intestacy.

This then leaves the death benefit. The child’s surviving parent wishes to create a trust to which the death benefits may be paid. The bank is agreeable to this. A discretionary trust would seem appropriate. However, the bank have stated that they are the settlor of the funds.

As the deceased was under 75 the funds will be tax free from the pension lump sum.

Similarly the death in service sits outside the estate and so is free of IHT upon payment.

However, by creating a trust now will the funds being paid to the trust be treated as an addition for IHT purposes. In addition if the bank is the settlor would a nil rate band be available.