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Death:
Life assurance and pensions

As part of your inheritance tax planning process the need for additional life assurance and pension policies may be identified.

Clearly the life assurance policies will pay out a lump sum on your death. In addition, pension policies will also typically pay out a lump sum on your death before reaching retirement. An employer's pension scheme may pay out a lump sum based on a multiple of your salary as "death in service" benefit if you die before retiring.

These lump sums, unless you take the appropriate steps, will form part of your estate and could therefore suffer inheritance tax at 40% if your estate already exceeds the inheritance tax nil rate band.

It is a very simple procedure to nominate who you wish to receive the proceeds of your life assurance, pension policies and / or death in service benefits. Most insurance companies, pension providers and employers have a standard form, or you can simply write to them. Ultimately any such payment is at the discretion of the trustees of the relevant scheme but if the payment is made as specified it does not form part of your estate and therefore does not become liable to inheritance tax on your death. The person nominated should be either a relation or someone who is dependent on you financially. An example wording for a pension scheme is shown below:

To the Trustees of ABC Scheme
Policy number 1223456789/0

In the event of my death I would like any benefit under the above policy to which the discretionary provisions apply to be paid to:

Full name
_____________________________________________

Address
_____________________________________________

_____________________________________________

Relationship*
_____________________________________________

*if not a relation please state briefly how the person is dependent on you

I understand that the above indication of my wishes will be used only as a guide to the Trustees when they exercise their discretion's under the governing documents of the Scheme.

Date
____________________________________________

Signed
____________________________________________

Print name
____________________________________________