The importance of nominated beneficiaries and joint accounts

The importance of nominated beneficiaries and joint accounts


What is a nominated beneficiary?

A nominated beneficiary is typically a dependent or adult relative who has been nominated to receive a death benefit upon the death of a member or policy owner (superannuation, pension accounts or life insurance death benefit). The most common issue we see in this area is a lack of urgency from people to actually contact their schemes and notify them of any changes to their wishes. Many people will nominate their beneficiaries once, when they first start a pension or take out a life insurance policy and never change those beneficiaries thereafter. In many cases this is fine as their wishes have not changed, but it is not uncommon to see ex-spouses and already deceased relatives still left as the beneficiaries, or grandchildren accidentally omitted when the policy owner or scheme member dies.


Pensions and insurance policies

Benefits in a pension scheme do not form part of your estate. Therefore, a Will does not necessarily have any impact on how these assets are distributed upon death. The pension or super is held by a trustee and the decision of how that money is distributed will ultimately rest with them.

After a rule change in 2015 it is now the case that if the member were to die before the age of 75, the benefits can be paid to any nominated beneficiary and distributed tax-free, subject to a Lifetime Allowance test. In the case they die after the age of 75, tax is paid at the recipient’s marginal rate. Benefits from a SIPP can be paid as a lump sum or as income, which means there is a tax planning opportunity to unsure benefits are paid tax-efficiently.

Prior to the rule change in 2015, how benefits were paid and taxed was determined by whether the member was in drawdown and whether the beneficiary was a financial dependent of the beneficiary. Grown-up children were unlikely to be deemed a financial dependent, whereas now this is not a relevant factor so it would be prudent for anyone who has not reviewed their beneficiaries since 2015, to revisit this area with the new rules in mind.

One issue with not having a nominated beneficiary on a pension or life insurance policy is that it could pay out into your estate, and therefore be subject to the inheritance tax on that estate at 40%. It will be subject to the probate process and could not be in the hands of your desired beneficiaries for some time. Some very simple planning can mitigate all of these issues and leave a smooth and stress-free process behind.

Joint accounts

One of the easiest ways to streamline financial affairs to have joint accounts or joint policies. In the event that one spouse passes away, the other spouse will retain access to the funds in a joint account without having to refer to a will or go through the legal system to claim the money. This can be applied to trading accounts or investment platforms not just current accounts.

As morbid a subject it may be, organizing your affairs properly is one of the most considerate things you can to do and will certainly help in what will no doubt be a difficult time for others. If you have not reviewed your beneficiaries, speak to one of our advisers today for guidance on the best planning strategies for your situation.

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Andrew Hipshon
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