My wife died earlier this year without having made a will. She left an estate valued at approximately £450,000 that was divided between me and our only daughter (in accordance with the intestacy rules). This means that I inherited outright a significant proportion of my wife’s estate and I also have a life interest in a statutory trust valued at approximately £200,000. I have no interest in receiving a relatively small income from the statutory trust for the remainder of my life and would prefer to use the capital to enable me to retire, earlier than planned, when I reach age 65 next year. Is this possible?
A. First, I am sorry to hear of your loss.
You ought to be able to use your life interest in the statutory trust to enable you to bring forward your anticipated retirement date.
Section 47A of the Administration of Estates Act 1925 permits a surviving spouse or civil partner to capitalise their right to an income for life under such a statutory trust and thus receive a one-off lump sum payment.
However, this is not quite as straight forward as one might expect. This is because the life interest has to be valued appropriately – it is not simply a case of dividing the capital value amongst the beneficiaries.
Because an income is payable under the statutory trust into the future (and for the remainder of your life), the capitalised value of your life interest in the trust must take account of the value of that future income that is being given up (discounted to take account of early receipt and the effects of inflation).
This calculation is performed by using a set of statutory tables that express the value of the anticipated future income as a proportion of the trust’s assets. This means that the younger the survivor, the greater the proportion of the trust’s assets they are likely to receive (and the older the survivor, the less attractive capitalisation is likely to appear).
It is important to note that, should you wish to capitalise your interest under the statutory trust, you must elect to do so within 12 months of the date on which the letters of administration were granted. This election must be made in writing and, assuming you are the sole personal representative, notice must be given to the senior registrar to the Family Division of the High Court.
Whether or not capitalising your life interest in a statutory trust is in your best financial interests is a difficult decision to make and requires that you take account of your financial circumstances in their entirety. I recommend therefore that you seek assistance from a chartered financial planner, who specialises in estate planning and retirement planning, who will assist you in determining whether capitalising your life interest in the statutory trust is in your best interests. You may wish to seek assistance from a solicitor also, who specialises in private client / administration of estates, to assist you in complying with the legal formalities.
Q. I am the owner/manager of a local business. I have received a letter from the Pensions Regulator stating that I must auto-enrol my workforce into a “qualifying workplace pension scheme” by next autumn. I was planning to begin sourcing the scheme and liaising with staff next spring, after the company’s year end. However, my wife has suggested that this might be cutting it a bit fine. Would you agree?
A. Yes, absolutely!
The government commenced a project, in October 2012, to enrol automatically UK workers (who satisfy certain minimum criteria) into a “qualifying workplace pension scheme”. The project will run until 2018, by which time employees will, broadly speaking, receive a combined employee and employer pension contribution in the region of 8% of their salary.
The Pensions Regulator (“TPR”), the body responsible for monitoring employers’ compliance with the auto-enrolment regime, will write to all employers 12 months ahead of their staging date (the date by which an employer must comply with its obligations) to remind them of their obligations and the deadline for compliance. I suspect that this is the letter you have received from TPR.
I recommend that all employers commence planning for their compliance with the auto-enrolment regime as soon as is practicable. Ideally, you ought to allow at least 9-12 months in order properly to manage the project and to allow sufficient time in order to deal with any issues that you may encounter.
Whilst many employers have, erroneously, assumed that little time is needed and that complying with the legislative requirements will be straightforward, this has not proved to be the case in so many instances. In particular, employers have encountered difficulties updating and/or integrating their payroll software to ensure that all required information is available and assessments of their workforce can be performed. It is anticipated also that the pension providers may face a “capacity crunch” over the coming year as so many employers are faced with having to comply with their statutory obligations.
I recommend therefore that you seek assistance from a chartered financial planner, who specialises in workplace pensions, as soon as possible in order to assist you in planning and implementing your qualifying workplace pension scheme in sufficient time to ensure your compliance with your statutory obligations.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
