What Happens to Your Retirement Savings When You Die?

Wednesday August 17, 2016

You can't take it with you, but you can have a say in what you leave behind.

Well, we've looked into it. We've sent out our best and maddest scientists to see what can be done, but despite our best efforts it turns out we're all still going to die eventually. Let's call that the bad news for now.

The good news is that death can actually be pretty painless, financially speaking. There may still be some loose ends to tie off with the taxman, but that cuts both ways. For instance, if you die while HMRC still owes you a refund,they don't just get off the hook because you're not there to chase them for it. Taxes on inheritances and retirement savings can be complicated, but with a bit of forward planning you can lighten the load of anyone depending on you.

With apologies to any spectres, zombies or high-functioning poltergeists reading this, we're going to assume for a moment that you're in a pre-deceased state yourself right now, and that you're either planning ahead or sorting out the final finances of someone else.  If the dead person wasn't all square withthe taxman, a call to HMRC's Tell Us Once service should probably be a priority. Northern Ireland has a separate system call the Bereavement Service. Depending on how it all shakes out, there might be a Self Assessment tax return to file, but either way it shouldn't be a huge hassle to tie things up and sort out a final tax calculation. 

If there's still money coming in after someone's death, HMRC will generally let you know what to do about that. They'll probably want a bite of it, so make sure to get advice if the taxman doesn't seem to know about the income. The same goes for any UK savings or investments they have, or for things like rental money. Again, a Self Assessment return can generally iron out any wrinkles there. There's some occasionally tricky stuff revolving around Capital Gains tax, but the short version is that you probably won't have to worry about it unless the assets get sold during probate.

So, let's talk about your "estate". Basically, this just means all your assets, property and money. You can make up a will to determine what goes where, and pick out an executor to make sure it gets done. That said, just because you didn't get round to making a will doesn't mean your estate evaporates when you die - or that no one gets stuck with a tax bill. Inheritance Tax generally only applies over £325,000, though, so somepeople got the idea of giving most of their stuff away to relatives in their final years. The taxman got wise to that pretty quickly, of course. Any "gifts" like that given in the last 7 years of your life can still bring the taxman to your beneficiaries' doors.

When it comes to your retirement savings, including things like ISAs, a will is probably a good idea if you want control over where the money goes. Without a will, the rules for your savings depend on your marital status and any children you've had. That's generally taken care of when your estate gets calculated, of course. Pensions can be another matter, though. This is where it can get complicated. State Pensions have particular rules, which have been changing a lot recently. Your spouse's situation after you die will depend on things like the year you were born and the type of State Pension you qualified for at the time you retired.

Private pensions aren't much simpler to handle, either. You'll have to talk to the pension provider to work out exactly what happens after you die. A lot depends on the scheme you're on and whether you've already started taking an income from it. In some cases, your payments will just stop when you die. Others will keep paying out to your spouse or dependent at a lower rate. Defined Contribution pensions might have different rules from Defined Benefit ones. You might need to deal with jargon-saturated terms like "flexi-access drawdown", and understand how the age at which you die changes what happens to your pension pot.

At the end of the day, you're still probably better off not dying at all. If we really can't talk you out of it, though, then a solid exit strategy will help you leave a lot less mess behind you. RIFT even has a specialised wills service to help you get to grips with the trickier details. We'll see you on the other side, but until then keep on ticking, keep on planning and keep on listening for more Voices from the RIFT.

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