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.’
For some of the grandchildren this will pose no issue as they are working and have existing pension arrangements into which the legacy can be paid.
However, two of the grandchildren (who are ages 35 and 38) are both long-term unemployed, with no prospect of starting employment and no pension provisions.
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 concern, which was shared by my mother, is that if the funds are given directly to the grandchildren they may never actually be paid into the pension funds!
Have you any advice or do you know of any pension fund providers who could accommodate this issue?
Tanya Jefferies, of This is Money, replies: You are in a bind because you understandably want to fulfil your late mother’s wishes, but you can’t necessarily control whether other members of your family will honour them.
We asked a lawyer to explain your duties as executor, and your legal responsibilities to your late mother and her beneficiaries in this situation, to ensure you don’t get into any trouble.
And we also got a financial expert to explain why the financial providers you approached were unwilling to let you open pensions on behalf of other adults.
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.
We hope this makes your legal position and your course of action clearer, and wish you the best in sorting this out.
Helen Salisbury, partner and solicitor specialising in wills and probate 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.
Something that I am often asked by testators, meaning people who are making a will, is whether they can place stipulations on the gifts that they wish 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.
I am sure that the will writer would have had a similar conversation with your mother at the time she made her will and explained that, given the sums involved, a trust may not be advisable because of the administrative burden and costs that flow from a trust.
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.
As implied by the wording, this is only a wish and is not legally binding on the recipient. You, as the executor, therefore have no control over the use of the legacy by the recipient.
The legacy belongs to the beneficiary and should be paid to them within a year of the death, as otherwise you could be liable to pay interest on it.
I expect this is why you are being told by the pension providers that the grandchildren have to pay the monies directly into the pension fund.
I also expect that there may be tax implications for the beneficiaries, which would be personal to them and hence why the payment must come from the grandchildren directly.
It is possible for a testator to impose ‘conditions’ on gifts taking effect in a will, for example upon attaining a certain age.
But, as the wording here suggests, this is not a condition and is only a wish sought to be imposed after the gift has been received, and simply a recommendation.
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.
Guidance from you and a financial adviser may help the grandchildren make the best decision for the use of the money but they may decide that they simply wish to spend the money as they see fit.
Helen Morrissey, senior pensions 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
The problem here arises because these two grandchildren do not currently have pensions of their own that you can pay into.
While parents and grandparents can open pensions on behalf of minor children and grandchildren, you can’t do the same for an adult.
The grandchildren will need to open the pensions themselves as the provider will need to be satisfied that they agree to all the terms and conditions and that they are aware of what pension contributions are being made so they can keep track of their tax relief eligibility.
As such you would need them to co-operate in the setting up of the pension itself.
But the legacy is theirs to do with as they please so you cannot withhold it without their permission.
I know you are concerned that if you give the money to the grandchildren direct they might not set up a pension or pay 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.
In fact, given that both are unemployed, and you say they have no prospect of working any time soon, then from a planning perspective it might be better to make a series of payments into the pension.
As an executor of the will you have a year to pay beneficiaries, to avoid having to pay interest. But if the timing works, you could split the payment over two tax years and get an extra tax relief boost.
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. That cap includes the tax relief itself.
Tax relief is a top up from Government to your pension contribution. 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.
However, it is worth checking this with your solicitor or legal adviser as what can be done in terms of handing over the money and the timing of it will be determined by the exact wording of the will.