Death in Service Life Assurance schemes are often provided by employers, for the time you are in their employment. They are usually calculated as a multiple of salary. Death in Service benefits are paid out under the rules of pension death benefits and do not form part of your estate. This means that the benefit is not paid under the terms of your Will. At some point, when you began working for your employer, you would have completed a nomination of death benefits form, requesting that benefits are paid to individuals of your choice.
Death in Service benefits can amount to substantial amounts of life cover for your family.. If you have children (whether married or single) there are advantages to setting up a trust to receive these benefits in the event of your death. Trusts can provide protection against hostile creditors, which may threaten your assets in the cases of divorce settlements, bankruptcy and care fees. They can preserve the inheritance tax benefits for future generations.
Thankfully, there is a simple solution to this. Instead of nominating the spouse, you could nominate a Spousal Bypass Trust as the beneficiary of the Death in Service Benefit. The potential beneficiaries of this discretionary trust are the surviving spouse and children or grandchildren. That means that the survivor can have use of the assets in the trust, but usually by borrowing anything they need; on their death, the money has to be paid back before Inheritance Tax is calculated, so their estate does not increase. If you earn £50,000 and your Death in Service benefit is £200,000, a Spousal Bypass Trust could save £80,000 in tax. Isn’t estate planning simpler than you thought?
