BRUCE WHITFIELD’S LOCKDOWN DIARY: The hidden trapdoors in your will
The reality is that even if you think you have your estate all neatly tied up, it’s going to be complicated by red tape of some description
No-one wants to contemplate their own death, but the fact is that the longer you live, the closer that day comes and you really need to limit the problems you leave your dependants.
The reality is that even if you think you have your estate all neatly tied up to cause minimal (further) distress for your loved ones, it’s going to be complicated by red tape of some description. You also need to be aware that just because you made a bequest in your will, it does not mean that your wishes will be carried out. Intellectually, we know that a will is open to challenge; emotionally, the shock of that challenge can be devastating, especially when it comes to how your pension fund is treated.
My cousin and her husband divorced a dozen or so years ago. These things are never nice. But it happened, and they each set about re-creating their lives. About four years before his sudden death in 2018, he met and moved in with another woman. They seemed to have been very happy and as far as anyone outside the relationship could tell, were planning a future together.
He’d worked hard and earned well, and had a range of investments that he left to his children, including two retirement annuities (RAs) with two different investment companies. He named his children (by then adults) as his beneficiaries.
I have no idea what his intentions were about his money at the time of his death beyond the little I have been told by one of his children and their documented objections to the way in which his assets have been divided.
His final will was signed in 2007, more than a decade before his death, while he was still married to their mother. His will specified that his children were his sole heirs, and he also specifically nominated them as beneficiaries on two RAs managed by two different companies. These are governed by the Pension Funds Act, which gives trustees discretion as to how payouts are made, regardless of the wishes of the deceased. Specifically, section 37C allows trustees to decide whether the beneficiaries you have nominated should, in fact, receive the money you intended leaving them.
Why? Well, the government allows big tax breaks on RAs, and the high court has ruled that trustees therefore need to consider all legitimate potential beneficiaries, including surviving spouses, children and, critically in this case, “other persons dependent on them”. The reason being that the trustees are expected to assess if any of the deceased’s dependants might one day become a burden on state coffers. If, in their assessment, that might happen, then they are obliged to apportion money to that person.
It raises huge issues as to who the law considers to be a dependant. In this case life partners are given the same status as a spouse, and can therefore lodge a claim, even if they are not nominated. The courts and the pension funds adjudicator have ruled that your nomination of beneficiaries serves only as a guide in the trustee decision-making process and does not bind them to your wishes.
One company paid the children out 50/50, as per their fathers’ request. The second firm requested details about their incomes after considering submissions from the live-in partner. The trustees decided that the partner should receive 86% of the fund, his daughter 14%, and his son nothing. I am told that they had assessed the earnings potential of the children against that of the partner, who is approaching retirement, and despite the fact that she does appear, from the outside, to be independently financially secure, apportioned her the lion’s share of the investment.
This is not uncommon, and trustees of pension funds are required by law to make decisions that may fly in the face of the wishes of the deceased. There are a range of checks and balances to ensure that all dependants and beneficiaries are treated fairly. There is an objections process that goes from the firm whose trustees made the decision through to the pension funds adjudicator and ultimately to the courts in extreme cases and depending what is at stake.
There are a couple of things to learn from this. Update your will regularly, especially if there is a big change in your life and you want that reflected in your will. If there is someone in your life who might challenge your wishes, be specific about what you would like to happen – whether they should be included or excluded and why.
They may still make a claim against your estate, but at least your intended beneficiaries will know you had their best interests at heart, and their overriding memory of you will not involve any second-guessing about their importance to you.