Hello again
My client would like to set up pensions for five minor beneficiaries now in his lifetime. He will pay in a small amount now but then wants to leave £25,000 to each by his Will. Anyone know how I would draft this? He doesn’t want the beneficiaries to access the money until 55.
Many thanks
Deborah
Hi Deborah,
No one right answer to this. Firstly, the minors are restricted to a yearly contribution of £2,880 per year, the payments will be a transfer for value (on the client), typically the annual allowance can be used or s.21 to offset the gifts for IHT. I have ignored carry-forward as I assume the minors do not qualify as they did not have a pension setup in previous tax years.
On Death – Use a holding trust: The problem is the £25,000 (for each minor) will take over 8 year to transfer from the trust to the pension scheme – because of the annual allowance restriction. i.e – although the will may direct an amount £25,000 be paid for ‘Minor 1’, pension law would not allow the payment.
One solution is to create a trust for the pension contributions via the will and then use a letter of wishes to direct the trustees to make annual pension contributions for the minors, until the trust is exhausted. We’d assume a discretionary trust (usually a bank account) so the minors would not have access to the funds.
Richard
PFEP
Not the answer to your specific question but offered if it might assist.
Elderly Uncle died leaving estate to elderly niece. Niece not interested in funds; would rather to her children / adult grandchildren but with safeguards in place.
Deed of Variation provided a few immediate gifts but bulk to a dis trust; the trust then invested in segmented life assurance bonds thus no tax returns.
Annually, sufficient bond segments were appointed/assigned to children / grandchildren to fund an annual net contribution to pension. Niece (who nobody dared cross) made plain monies were for pension, and thus there was an annual ‘party’ wherein the deeds of assignment were signed, encashment forms signed by the appointees, and cheques collected from appointees in respect of the pension contributions.
Worked very well; the funds in the bonds funded about 10 years of contributions, and the original £100k ish turned into £250k ish of funds in pensions with earliest access aged 55 years.