The death of a client will test even the best of intergenerational wealth transfer plans.
In short it is key that you have a client relationship with the beneficiaries before this occurs as they will become the owners of the wealth. Below is a summary of the most common ways you might be managing the wealth of your client, how the legal ownership of this wealth can change and whether that wealth can remain invested.
In an ISA
Wealth in an ISA can potentially remain invested if the client was married or in civil partnership. If the surviving spouse inherited the ISA, the funds held within it can be moved into an ISA in the surviving spouses name. This can be done either without selling them (an ‘in specie' transfer) or by using the value of the inherited funds to make a new ISA investment (for those funds that cannot be transferred).
If not married or in civil partnership, the funds in the ISA are sold. They are distributed in accordance with instructions from the deceased legal representatives.
The details within the client's Will influences what happens. If the ISA proceeds are paid to someone other than the spouse, it is a clean break and they will need to reinvest the money into assets.
In a pension
Wealth within a pension can potentially remain invested. If the client has a surviving dependant (i.e. a spouse or a child under the age of 23) the pension could remain invested and ownership could pass to the dependant. The scheme administrator does not need an ‘expression of wish' from the client to use their discretion in setting this up although this would be preferred.
If the client wanted someone other than a dependant to have the ability to own the pension and for it to remain invested, then they would need to complete an ‘expression of wish' detailing the named individuals who they would like the scheme administrator to consider.
Without an ‘expression of wish', the scheme administrator has less flexibility in their discretion and the client's wishes might not be met. Where no ‘expression of wish' exists, the scheme administrator can only settle the death benefit to non-dependants by paying them out as a lump sum payment. A long-term pension planning opportunity and valuable tax advantages could be lost.
Top Tip: An up to date ‘expression of wish' will help avoid delays and lump sum pay outs when they are unnecessary.
In the last four years, Quilter have seen over 1 in 5 pension death claims be delayed or the option for the pension money to remain invested lost because of no ‘expression of wish', ambiguity or challenge from potential beneficiaries.
This situation can be avoided with a clear and up to date ‘expression of wish'. Click here for our helpful death benefits flow chart which provides more information regarding pension death benefits.
In a general investment
General investment wealth can potentially remain invested, if the investments were held in a joint name. The surviving investor will become the sole legal owner.
If held in the client's name only, the investments will remain invested and held by the estate. They are then distributed in accordance with instructions from the deceased legal representatives either as a transfer of ownership of the investment or sold for cash.
The details within the client's Will influences what happens.
In a bond
If the bond was owned solely by your client and they were the only life assured, then on their death the bond will cease and the proceeds from the bond will be distributed in accordance with instructions from the deceased legal representatives.
A trust can be an invaluable financial planning tool, both helping your clients to mitigate tax and giving them control over how and when wealth is distributed. Click here to find out more about how Quilter can help our range of trusts.
The Quilter solution
Quilter is the new name for Old Mutual Wealth.
Since 1979, we've been supporting financial advice professionals like you.
This year we have invested significantly into our platform upgrade, to help you build more valuable relationships - moving forward together. A key part of the improvements has been to make it easier for advisers to incorporate true intergenerational planning with a full range of age specific ISAs and other products and better value for clients with family linking of accounts.
Click here to find out more about our new platform and ongoing commitment to advisers just like you.
View Quilter's legals here
The value of your client's investments may fall as well as rise and they may not get back what they put in.
