Death-in-Service Nominations

A company death-in-service scheme may provide you with valuable life insurance cover at no cost, or you may have to pay the premium yourself (usually at a cheap group rate), and you may have the option to top-up the cover to meet personal/family needs beyond the minimum provided by the company.

In most cases you will not own the policy – it will be held by trustees for the scheme as a whole. You are then invited to say who you would like the cash paid to in the event of your death. As you do not own the policy the proceeds will not form part of your estate passing by Will, and will not be subject to Inheritance Tax (IHT).

Freedom from IHT gives an opportunity to direct it to someone other than a surviving spouse. If your spouse is well provided for because of accumulated wealth and pensions, there may be an opportunity to pass a tax free nest egg to children, or to a partner who is neither your spouse or civil partner, or if you are of UK domicile to a spouse/civil partner who is not. Assets passing to anyone in these categories by your Will may suffer IHT, and the tax free policy proceeds will be more important than usual.

One approach is to work out with care how much cash different beneficiaries need and make sure your nomination spreads it between them in those shares. Of course if your children are minors that will be a problem as the trustees will not be able to get a valid discharge from them until 18. Indeed, would you want your children to receive a large sum of capital at 18? Or postpone the vesting age to say 25? One method is to ask the scheme trustees to pass the cash to a “pilot trust” which you may set up in anticipation.