Minor beneficiary of Death in Service Benefits

Trusts Discussion
1

Dear Forum members

I have a client whose 14 year old daughter was specifically nominated (by her late father) to receive the death in service benefits from her late father’s employer. The client and the deceased were divorced for a few years before he died. They had shared care of their daughter. The deceased died in August 2022. He died intestate.

The deceased had two other children, both of whom are adults.

After the death, the deceased’s sister took charge and administered the estate. A month after the death, (September 2022), the sister received around £211,000 from the deceased’s employer (the death in service benefits ) on behalf of my client’s daughter.

The sister, has controlled these funds and not disclosed where it has been invested.
My questions are the following:

  1. Is my client , as the mother, entitled to be kept informed about monies held for her daughter?
  2. Is my client, as the mother, rather than the sister of the deceased, the right person to hold the monies on behalf her daughter?
  3. Is the sister obliged to account to the mother for the daughter’s funds?
  4. Can my client insist that the sister hands over the funds to her and can she insist on interest to be paid on top? If yes, at what rate of interest?
  5. Are the two other adult children able to make a claim for a share of the death in service benefits?
  6. Does mother have any recourse against the employer for releasing her daughter’s money to the wrong person.

I appreciate your thoughts and answers.

2

  1. If there is no trust or bank account set up for the child (to accept the funds) the trustees “may” pay the benefits to the executor under the scheme rules.

  2. In terms of possible negligence of the trustees payment you would need to see the scheme rules.

  3. Yes. The S should be providing information to the C - however it appears unclear if the funds are held on a formal trust?

  4. Why was the sister allowed to apply for LofA?

Richard C. Bishop
PFEP

3

Thank you Richard. Your input is appreciated.

S has not applied for Letters of Administration, as far as I am aware. It is not yet clear why and how the death in service benefits were released to S.

S received £211,000 of which she paid £111,000 under a deposit booster arrangement to third parties, without my client’s knowledge or consent.

No formal trust was set up or registered.

  1. Can my client insist that the sister hands over the funds to her and can she insist on interest to be paid on top? If yes, at what rate of interest?
  2. Are the two other adult children able to make a claim for a share of the death in service benefits?
  3. Does mother have any recourse against the employer for releasing her daughter’s money to the wrong person.
4

I suggest your client ask on what grounds payment was made to S if S has has no parental responsibility and, therefore, no right to receive payment on behalf of the minor.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

5

Dear Richard

Thank you for replying to my post.

Are you saying that if the child (being a minor) had her own bank account, the funds should have been transferred by the pension administrators, directly to the child?

I do not think that S has set up a formal trust, can she be held to be in breach for having not set up a trust for the money she received on behalf of the child? When you say that S should be providing information to the C , if here is no formal trust, does this mean it exempts S from her duty to provide the C of information regarding the child’s money.

I do not think that S applied LofA; although I do not know how else the money would have been released to her.

Kind regards

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6

Thank you, Paul.

S states that she received it on the basis that she was the deceased’s next of Kin. How do I tackle this situation? Can S be made to account for the money with interest to my client?

If needed what claim can the client make against S?

Kind regards

7

The starting point is the pension trustees. I would write to them and ask for an explanation?

I execute around 20 pension death claims per year and they always require: DC, LofA or Probate and ID - even with a nomination form.

I’d in addition apply for the LofA on behalf of the minor, this will give you far more powers to investigate the death claim.

Richard C. Bishop

8

Dear Richard

Applying for a LofA on behalf of the child is a very good idea. However, S has all the information re the deceased’s estate and this will be nearly impossible to obtain from her. The estate is not large enough to justify taking S to court to force her to provide us with details of the estate. That is probably why S did not try to apply for a LofA in her name.

Nevertheless, a good idea and I will try this.

Thank you for your input, Richard. It is appreciated.

Kind regards

9

In the case of an application for a Grant of Letters of Administration, when there is a minor beneficiary two applicants are required under the NCPR 1987, so I do not understand how the sister was able to be sole applicant for the Grant.

Cliona O’Tuama

1 Like
10

Dear Richard

Applying for a LofA on behalf of the child is a very good idea. However, S has all the information re the deceased’s estate and this will be nearly impossible to obtain from her. The estate is not large enough to justify taking S to court to force her to provide us with details of the estate. That is probably why S did not try to apply for a LofA in her name.

Nevertheless, a good idea and I will try this.

Thank you for your input, Richard. It is appreciated.

Kind regards

11

Dear Cliona

Thank you. Sister has not applied for Letters of Administration because the estate did not warrant it.
It is not clear how the Pension administrators released funds to Sister without LofA.

13

Do you know if the scheme was defined contribution or defined benefit?

Or who the provider was?

Richard C. Bishop

14

My answers to your questions are
1 Probably not
2 Not necessarily
3 Probably not
4 No
5 No
6 Probably not
I’m assuming that the pension trustees have already considered all options after taking account of a recent expression of wish and that the sister is likely to be acting as a trustee. If so, a judge is highly likely to rule that they are perfectly entitled to exercise their discretion as they see fit without having to justify their decisions to any third parties.

15

On Tony’s assumption I agree with him. The daughter’s remedies, if any, are against her trustee for breach of trust, provable in the normal way. The child has a definite right to be informed about the admin of the trusts, e.g accounts, especially as it seems likely that she is the sole non-contingent beneficiary. Mother, given parental responsibility, has standing to sue on her behalf but should take advice and “nose out of joint” is not a cause of action.

As to the 2 other children, if Tony’s assumption is correct they are out in the cold. It behoves those with DIS benefits to make a detailed and regularly updated expression of wishes to paint the pension trustees into a corner for taking into account irrelevant matters and ignoring relevant ones and coming up with a daft and actionable appointment. One expects the trustees of pension funds to be careful about this but they might not have been in this case. That is: Tony’s assumption is likely to be correct, if they are well-advised and experienced pillars of the establishment, but it might not be so in every case. It is conceivable that if the sister disappears to South America with the trust fund that they might also be at fault for lack of due diligence in their own right as trustees. It is after all a lot of spondulicks.

Jack Harper

16

The sister is not sharing any information with us yet. We do know that the deceased worked for BEIS.

17

Thank you for the concise answers to all my questions Tony. Much appreciated.

18

Dear Tony

May I ask why you my client cannot insist that the sister hands over the funds to her with interest over the two years she held the funds especially if the sister is in breach of trust, as she probably is?

Kind regards

19

Dear Audrey,
My understanding (based on several decades of involvement in pension death benefits) is that a disappointed potential beneficiary is unlikely to succeed in challenging trustees’ properly considered decisions. I imagine that the only way that the chosen beneficiary can be compelled to hand over funds is if a judge orders her to.

20

Because, Audrey, your client has no legal cause of action against her sister or the pension trustees. The only person who might is the child. Her mother has the right to litigate as the child’s litigation friend.https://www.gov.uk/litigation-friend/suitability

Of course it is first necessary to establish whether the sister has done anything wrong. She should be asked the pertinent questions to form a judgment and then contemplate whether action is likely to succeed and who will bear the costs and what they might be. For this you need to consult a solicitor with a chancery litigation practice. This is not a DIY operation.

I am sure Tony is right about the pension trustees. They will probably be used to exercising their discretion over death in service benefits and will have access to all the professional advice needed and a ready-made defence to any challenge. It remains however slightly odd to an outside observer that two children have been completely passed over. My guess would be that the one child was named as the sole beneficiary in a non-binding expression of wishes. That is not conclusive and I would certainly say there might be a case to answer if they have not bothered to consider other children or even find out if they exist.

I do not suggest that they are therefore a promising target and if they have chosen not to give reasons they would present a more formidable one. Any cause of action here would be for those two children to pursue. But the above kind of solicitor can consider the facts and may advise writing a letter to them querying their decision. Their response may indicate how strongly, or not, they believe in the action they took as appropriate.

Jack Harper

21

On another note, has S complied with her duties under the TA 2000 regarding the investment of the funds.

As you are probably aware, the standard investment criteria set out in the Trustee Act 2000 stipulate three key elements that must be adhered to.
Firstly, trustees need to ensure that the investments selected are suitable for the trust in question. What is the objective of the trust ( probably implied trust at this stage if no formal trust arrangement exists) and requirements of beneficiaries, the time horizon for investment (minimum 4 years till age 18, possibly to 21 if education continues), and the level of risk to which trust investments are exposed ( not forgetting inflation risk).

Secondly, investments need to show sufficient diversification, as appropriate to the trust in question. For the majority of cases, this means that the investment strategy needs to allocate funds across different assets (such as equities, fixed interest securities, property and cash) geographies and sectors.

What is the purpose of the monies held in the trust - income now? University fees? etc. Is half the money in a deposit account a suitable investment? Was professional advice taken?

Thirdly, trustees need to keep investments under regular review. Probably not an issue at the moment but annual reviews would probably be a good idea.

Has S actually talked to the minor beneficiary about future plans, or does S ‘know best’?

Regarding the DIS benefits and the other children, once the scheme administrator/trustees have made a decision as to who is to benefit, the recipient, takes complete control as to how they use the pension fund during their lifetime and who in turn they may wish to benefit from the fund on their death.

Administrators will normally pay out according to their clients’ expressions of wishes, but they will/should take steps to make sure that doing so is still appropriate. For example, administrators may check whether circumstances had changed significantly since making the expression of wishes and whether there’s reason to believe that different beneficiaries would be more suitable.

If the elder children feel as if they missed out, they would have to challenge the administrator/trustees of the pension scheme.