If you have a life insurance policy or a pension, have you completed a nomination form indicating who you want to have the proceeds of those products in the event of your death?  This is something that we strongly advise all of our clients to do, as the consequences if there is no nomination can be not what you intended at all. 

The repercussions of not nominating a beneficiary or beneficiaries to benefit from the proceeds of a life insurance policy or pension pay out can be (1) the proceeds fall part of the estate, which can increase the amount of Inheritance Tax due; (2) the proceeds are paid to unintended beneficiaries.

One example a member of the Private Client team had to deal with was an estate where the deceased was unmarried and did not have any children. Their Will stipulated that their estate go to their nieces and nephews. For Inheritance Tax purposes, their estate only benefited from an individual Nil Rate Band of £325,000.  

The deceased had a life insurance policy and a pension. Upon their death the life insurance paid out a large lump sum of money as did their pension. Before these two lump sum payments were made, the estate value was under the £325,000 threshold and therefore not subject to inheritance tax. Unfortunately, because no nomination were made on the life insurance policy or the pension, the lump sum monies formed part of the estate which increased it to above the threshold and therefore inheritance tax was payable on the excess over £325,000 at a rate of 40%. The result was that, in what could have been an unavoidable situation, inheritance tax of £58,000 had to be paid.

In order to prevent the above situation from happening to you, you will need to contact your insurance provider or pension provider and ask for a nomination form, which will enable you to input your intended beneficiary’s details. This means that in the event of your death, the monies paid out will go directly to the beneficiary or beneficiaries, instead of forming part of your estate.

If you have any questions or would like to discuss an issue with a member of our Private Client team, please do not hesitate to contact us on 01243 532777.