Minor beneficiary of Death in Service Benefits

Trusts Discussion
22

Dear Andre

You bring up some excellent points regarding the Trustees’ duties under TA 2000. The little info we have at the moment is that the funds were held in an account in S’s name. S paid school fees for the child over the last two years and paid for a laptop for her. She says she used some of the DIS to pay for funeral costs.

S entered into a Deposit Booster Agreement with two friends of hers who were purchasing a property in Cornwall. S paid £ 111,000 as the Deposit Booster.

We are still to ascertain if the Trustees’ Duties regarding investment criteria were observed.

This appears to be a case of S knows best.

Thank you Andre.

23

Interesting that the DIS paid for funeral costs - funeral costs normally come out of the estate and the DIS is outside of the estate - the whole point of having an expression of wishes.

Has the trustee exceeded her remit?

I will leave others to comment on that point.

24

We have not been told what kind of trust we are dealing with here. Pension trustees invariably do not themselves set up trusts to receive the DIS payment. They will pay into a trust which is already in existence and nominated in an expression of wishes. My own adviser has finally persuaded me to do this after I recounted, as a former trust practitioner, all the reasons why I thought it was a bad idea.

There is a strong possibility that the sister is a constructive trustee of a bare trust with no trust instrument, so governed purely by statute and the law of equity. As Andre says, as she was executor she should have paid funeral expenses out of the estate and not the trust fund which is entitled to reimbursement from any remaining estate funds, or the the volunteers who have received the net estate, or her personally per her own devastavit. If this is indicative of a cavalier attitude to her trusteeship there may be grounds for removing her under s.41 TA 1925. The “Deposit Booster” arrangement is not only an unauthorised investment (without an express power) but so malodorous that a criminal offence may have been committed: a trustee can be guilty of theft of trust property as well as a stranger to the trust.

Jack Harper

25

Depending on type of the scheme you can question the payment and the trustees decision. I disagree you (or the child) is in a dead-end legally.

Compliants about DiS payments are common.

Refer to Ombundsman or FoS for help on understanding how/why the payment was made.

I do agree - if the payment has been made correctly by the trustees there is little room legally to challange a valid decision in the courts.

Richard C. Bishop

26

Dear Jack

I agree with you on the following.

  • S is a constructive trustee of a bare trust. S admitted to receiving the DIS on behalf of the nominated minor child. S maintains that she has invested funds for the child (the Deposit Booster agreement ) for the child’s future for her to receive when she is 25. We have requested S to provide full disclosure of correspondence with the deceased’s employer/pension administrator regarding the DIS and copies of documents she signed to receive the DIS including her bank statements of the account the monies were received into. S provided an incomplete copy of the Deposit Booster Agreement and a Deed of Trust signed in July 2024 (after we wrote to S asking for information).

  • I agree with you and Andre that S cannot deduct funeral expenses from the DIS money. The deceased died intestate and was survived by two adult children and one minor child. Moreover, per the Intestacy Rules the children have priority over S to administer the estate.

  • Can I confirm if the proper application is for S to be removed under s.41 TA 1925, given that this is a bare trust and S appointed herself as trustee to receive the DIS. Or is there some other redress available to the child, who is acting through her mother.

Thank you.

27

We insist that all of our clients routinely renew their pension death benefit expressions of wish annually. This ensures that their trustees can never be in doubt about their intentions when exercising their discretion.
We recently onboarded a newly widowed client whose late husband’s last expression of wish was declared 15 years ago. This resulted in her having to wait 2 years whilst Standard Life’s trustees considered several other beneficiaries including his estranged former wife.

28

Richard makes an excellent suggestion but you will note that the children, or their mother if they are minors, must complain to the trustees first. While the Ombudsman is entirely accustomed to receiving communications from complainants without legal expertise I would recommend that an initial complaint to the trustees would be better coming from a specialist solicitor to ensure that things get off on the right foot. I suggest such a person because a generalist is likely to run to Counsel immediately, rather than later, if and when it becomes essential, and rack up costs unnecessarily.

To remove a trustee requires grounds. That and any other legal issues and causes of action call for particular skills. I was a non-contentious trust practitioner for 50 years and although I know my way round contentious trust matters I would not have dared venture into acting for a client or even for myself in trust litigation. I do my own stuff now as a litigant in person in minor matters but this area even to me is rocket science. Part of any adviser’s professional expertise is knowing where it ends.

One of the Rules of Court (Pre-action Protocol) requires litigation to commence with a letter before action. I would be prepared to do a first draft in a personal matter with my own specialist knowledge and previous experience of such letters but I would provide it to a specialist to comment or sign off before it was sent. You describe the mother as your “client” but do not say what your skill set is. A LOA should be drafted or settled by a specialist as it is preliminary litigation. The Law Society can find you the right person if you are not sure where to go. Once the Rules are triggered full disclosure by the sister will be ordered by the Court if she does not first cave in and agree to rectify matters and retire as trustee. If she ignores a Court order she will be in contempt. That concentrates the mind of all but the bone-headed. You should have a replacement in mind, prospectively acceptable to the Court.

This Forum lends itself to just the kinditerative dialogue we have had, where several contributors chip in. It also informs other members. You cannot have a nice chat with a Master or Judge in the Chancery Division. It is a formal procedure. And this case plainly requires specialist advice about the facts, some of which as I have already hinted may well be highly personal and should not be aired in public. This is not the place to obtain such, though it has hopefully fulfilled the function of adding to your understanding of what is possible.

Jack Harper.

29

I’ve spent some 35 years specialising in the field of pensions, including 15 years as a volunteer adviser for what used to be the Pensions Advisory Service, so sadly have seen more than my fair share of death in service claims, including those leading to disputes.

Audrey – you’ve asked how the pension administrators released funds to S without LofA. I have never seen a situation where LofA or a Grant of Probate is required before a decision can be made on who should receive the DIS payment, or the actual payment. Frequently funds are needed urgently by the survivors, and waiting for this is unlikely to add much, if anything, to help the decision taking. There is also a danger that the lump sum will not be paid out within 2 years, meaning it becomes taxable. The exception could be where the trustees decide to pay it to the PRs, or scheme rules dictate that is the default position – and if a member has died intestate…

Knowing that the deceased worked for BEIS at the time of his death is helpful – he was a civil servant, so we are in the land of Nomination Forms, not EOWs. Unlike the private sector, with its EOW/trustee due diligence approach, the Civil Service has no equivalent requirement: any DIS lump sum will be paid to the nominees, or if that is not possible for some reason, it will be paid to the PRs. It is possible to nominate a child, but if that is what the deceased did, it is perhaps surprising that S was able to claim on the child’s behalf. Knowing exactly what was on that form might help to establish who, if anyone, has done/is doing anything ‘wrong’.

The deceased could be expected to have been a member of one of the Civil Service pension schemes at the time of his death – either the main DB scheme, or the Partnership Pension, or possibly periods of membership of both at different times. Do you know if anyone has checked if a child’s pension is payable under the DB scheme? Or whether there might be a pending payout in respect of the Partnership Pension fund?

Andre - turning to funeral expenses, I’ve been thumbing through an assortment of TD&Rs (both pension schemes and stand alone DIS) drafted by various specialist pension solicitors, and there’s a common theme. To quote from one of these: ‘If a person has paid or incurred all or part of the costs relating to the deceased Member’s funeral, the Trustees may deduct from the lump sum the amount of those expenses and pay that amount to that person, or make settlement direct. Such payment may be made in advance of the Trustees exercising their discretion as to payment of the remainder of the lump sum’.

If S received the full DIS amount specifically and exclusively for the benefit of the daughter, then the position would of course be as others have said: it would not be appropriate for funeral costs to be paid out of the lump sum – but perhaps the question needs to be asked before the accusation is made?

Jack has commented that a public forum is not the place for rehearsing potentially sensitive and personal matters. I could not agree more. However, I have a feeling that family dynamics might be influencing matters, possibly quite heavily, which isn’t going to make resolution of this issue any easier.

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30

Garlands makes an incisive contribution. The particular rules of the given scheme are a first port of call. IHTM17058 has a disclaimer as one would expect but if there were something radically distinctive about the Civil Service Schemes I would expect it to be noted here if it demanded a different HMRC approach from IHTM17051-5.

I do not know where the 2 year limitation on payout comes from, unless from a scheme’s rules. There is nothing in the IHTA. Also if there is a default destination, certainly if to the PRs and possibly to anyone else, it must come perilously close to causing the funds concerned to be liable to IHT in the deceased’s estate as a payment as of right or under a general power.

I would add to my earlier sermon on trust litigation and horses for courses the warning about PI cover for professionals advising. Make sure you are covered. I practised as a chartered tax adviser but had great difficulty in convincing my insurers that in addition to tax advice I advised on other legal areas (not being reserved activities) having been a fully qualified and suitably experienced partner in a solicitors’ and an accountancy firm. It took some bargaining with these very obtuse cartels to ensure I got the full non-standard cover I needed rather than what they wanted to sell me (the instinctive objective of the Monopolist). Remember: insurers will insure you against anything except Risk and love Premiums but detest Settlements.

Jack Harper

31

Jack - the 2 year period doesn’t derive from the scheme’s rules, but is a legislative requirement. A lump sum death benefit payment which is not made within two years of a scheme knowing (or could first have been reasonably expected to know) of a member’s death becomes a ‘taxable authorised’ payment. See PTM073100 - Death benefits: lump sums: defined benefits lump sum death benefit - HMRC internal manual - GOV.UK

As you will see, the exact legislative reference varies depending on the type/source of the lump sum.

The two year period definitely applies to Civil Service death benefit lump sums.

32

I am very grateful for that link. However I am still surprised that it is not repeated anywhere in IHTM. The vast majority of those involved with IHT will be reading IHTM and the IHTA. They will not be technical pensions experts. Very few are.

Jack Harper

33

Of course! Because the sanction is an income tax charge. We are again victims intellectual compartmentalisation by HMRC. The IHT people rejoice in not knowing anything about other taxes. Just like the TRS people rejoice in knowing nothing about any type of trust taxation and the law of trusts and succession. What would our clients and insurers think if their tax adviser failed to advise in this blinkered manner.

Jack Harper

34

Really? Can you help with a DiS claim we are making? Its paid to his brother. They’re asking for probate?

Are they wrong?

[I have never seen a situation where LofA or a Grant of Probate is required before a decision can be made on who should receive the DIS payment] your comment.

Am I missing a trick?

From the form: Please note: if we calculate the benefits payable to the deceased member’s estate and the amount is more than £10,000 (or £40,000 where the personal representative is the member’s spouse/ civil partner, and they are co-habiting) you or your solicitor must apply for a Grant of Representation before we can pay any benefits due.

35

If it’s being paid to the brother, rather than the estate, that means there was a valid nomination form. I suggest you refer them to page 6 of their own publication: https://www.civilservicepensionscheme.org.uk/media/vconfath/csps-how-to-claim-death-benefits-v31.pdf

If there is a death benefit nomination:
If the deceased member has made a death benefit nomination, we will pay a death benefit lump sum to their one nominee (if they were in classic scheme) or their nominees (if they were in classic plus, premium, nuvos or alpha scheme).
We will send a One-off payment claim form to each nominee for them to complete. Please note: A Grant of Representation is not required to release this benefit.

…and also to the bit you’ve quoted from their webpage. Sounds as if a wire has got crossed somewhere.

36

Thanks for the info.

Richard

37

Thanks for the illuminating DIS info. A most interesting thread.

Jack Harper

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