I am executor of my mother’s will and, very sensibly, she left a £10,000 pecuniary legacy to each of her grandchildren with a stipulation: ‘It is my expressed wish that she/he utilise such legacy towards a pension fund.’
Some grandchildren will find this no problem as they work and already have pensions that allow them to pay their legacy.
Two grandchildren, ages 38 and 35, are currently unemployed and have no prospects of finding work.
Last wishes: My mum left her grandchildren £10k each towards their pensions, but two are unemployed and don’t have any provision for retirement
I have been trying to find a pensions provider who would open a low cost stakeholder or private pension fund for each of them whereby the £10,000 could be paid into the fund directly from the executor account on their behalf.
However, my enquiries have been answered (typically fairly unhelpfully) with the suggestion that the grandchild would need to pay in the money themselves ‘directly’.
My mother shared my concern that the money may not be transferred to pension funds if it is given directly.
Are you able to offer any assistance or are you aware of any pension providers that might be able to accommodate this matter?
Tanya Jefferies of This is Money replies: It is difficult to fulfill your mother’s wishes. However, you cannot control whether or not other family members will honor them.
For your safety, we asked an attorney to discuss your duties as executor and the legal responsibilities you have to your deceased mother’s beneficiaries.
We also consulted a financial specialist to help us understand why financial service providers we approached weren’t willing to open your pension for other people.
Importantly, there are tax implications to putting £10,000 all in one go into a pension, which will vary depend on the holder’s personal circumstances.
This should clarify your legal situation and the course of your action. We wish you all the best.
Helen Salisbury (partner and solicitor at Nelsons) replies: When someone passes away, it falls to the executor of the person’s will to sort out what is outlined in its contents.
Helen Salisbury: The legacy belongs to the beneficiary and should be paid to them within a year of the death
Being named an executor can be daunting as there are many legal responsibilities associated with the role, such as ensuring the deceased’s estate is distributed and that their finances are sorted.
One question I get often from testators who want to make wills is whether it’s possible for them to specify the gifts they would like to leave.
While I understand that this may be necessary in certain circumstances – for example, if there are children under the age of 18 or it is a large windfall – my advice to the testator would always be that the gift is either made outright to the individual, for them to do as they please with, or it is left in a trust, which the executor can control thereafter.
Your mother would probably have spoken with the will-writer at the same time. She explained to you that trusts are not recommended due to the costs and administrative burden that trusts can bring.
It seems that, in this instance, your mother has therefore decided to leave the sum of £10,000 to each grandchild with a ‘wish’ that they use it towards a pension fund.
This is a wish, and not enforceable for the recipient as implied by its wording. As executor you have no authority over how the legacy is used by the beneficiary.
In order to avoid interest, the legacy should be left to the beneficiaries within one year.
This is likely why the pension providers are telling you that your grandchildren must pay directly into the pension funds.
Additionally, there could be tax implications for beneficiaries. These would personal to the beneficiaries. The reason why payment must be made directly by the grandchildren is because of this.
It is possible for a testator to impose ‘conditions’ on gifts taking effect in a will, for example upon attaining a certain age.
This is not a condition, but a request to make a gift after it has been given is a suggestion.
Although I understand why you want to fulfil your mother’s wishes, there is no binding obligation upon you to ensure that the legacy is used towards a pension fund.
Your guidance and that of a financial advisor may be helpful to your grandchildren in making the right decisions about how they spend their money. However, they might decide they want to just do what they like with the money.
Helen Morrissey (senior pensions analyst and retirement analyst at Hargreaves Lansdown) replies: Ordinarily there shouldn’t be an issue paying a pension contribution on behalf of an adult grandchild.
Helen Morrissey: Even though the grandchildren are not working they can still benefit from tax relief on contributions of up to £2,880 every year
This is because the grandchildren don’t have any pensions that they can contribute to.
While parents and grandparents can open pensions on behalf of minor children and grandchildren, you can’t do the same for an adult.
As the provider must be satisfied that the grandchildren agree to the terms, the provider also needs to know what contributions have been made to ensure that the grandchildren are able to keep track of tax relief eligibility.
You would expect them to cooperate in setting up the pension.
However, they have the right to leave a legacy and you can’t take it away without their consent.
You are worried that the money might be given to your grandchildren without them setting up a pension and paying it in.
However, if they do open pensions – and if you get their permission for the following – you could then pay the money in for them, and perhaps in instalments.
If both of you are currently unemployed, and they say that there is no chance for them to work anytime soon, planning might suggest making a number of pension payments.
You have one year as an executor to distribute beneficiaries to prevent interest. If the timing is right, however, the payments could be split over two years to get additional tax relief.
Under current rules you can pay up to 100 per cent of your income – up to a cap of £40,000 per year for most people, exct very high earners – into your pension and still receive tax relief. The tax relief is included in that cap.
Your pension payment is subject to tax relief. If you are a 20 per cent taxpayer then for every £80 you contribute to a pension, the Government tops it up to £100.
Even though the grandchildren are not working they can still benefit from tax relief on contributions of up to £2,880 every year – the Government tax relief will bring it up to £3,600 per year.
Breaking up their contributions over two tax years means the grandchildren’s pension would benefit from an extra boost from the taxman rather than just one and this would add to the value of both of their pensions.
It is worth talking to your lawyer or solicitor about what you can do. The exact words of the will will determine when and how much money will be handed over.
