The challenge of pension valuations in probate

Some aspects of managing a deceased estate are easier than others, especially when it comes to valuing assets. Putting a value to a property, for example, may appear easy on paper, but finding two surveyors who agree on anything is similar to the old joke about economists: if you have 10 economists in a room, you’ll get 11 different answers!

Aside from property, one of the largest ‘assets’ upon a person’s death is their pension. Money Purchase (sometimes referred to as ‘Defined Contribution’) Pension valuations, however, are straightforward and unambiguous. Unlike in a divorce settlement, when two different legal representatives may come up with two different valuations gathered at a different time to benefit their respective clients, the pension value of a deceased is more black-and-white. There is nothing arbitrary about it. The pension provider simply issues a valuation which is frozen on the date that the death occurred. In the vast majority of cases, therefore, pensions represent very little challenge to the probate solicitors. But it’s not always the case.

The majority of Defined Contribution pensions are in fact effectively huge ‘master trusts’, and policies are raised under those trusts and the money held on an individual’s behalf. Which is an interesting technical point, because it means you don’t own it yourself!

As a ‘trust’ there are Trustees who in theory (and in practice) decide to whom the pension sum is paid. Usually, this means the pension is paid to the spouse and/or a nominated next of kin, for there are such things as ‘Expressions of Wish Forms’ (also called ‘Nomination Forms’ and other such derivations) to evidence who the deceased wished the money to go to. And this is where it can get complicated, because there have been cases where the Trustees have decided to overrule the Expressions of Wish and take a different course.

Take, for example, the case of a gentlemen who died leaving an Expressions of Wish that his mother should receive the money, and not his estranged wife. This same gentleman had two illegitimate sons. The Trustees decided that an endeavour should be made to find the children, and as such his mother received nothing. She died before the case could be resolved.

It’s an unusual case but not so unusual that it shouldn’t ring an alarm bell or two. And there are other complexities, because not all pensions are the same. What we might think of as ‘everyday’ pensions are seldom an issue as they are easy to value at a given point in time. But what about pensions that include things like CIFs (Common Investment Funds)? CIFs might typically only be valued annually, or even every two years, so how is that accommodated when valuing the total pension pot? It’s a problem, and it’s not an easy one to solve.

So too is the length of time it takes for probate to be granted. The value of a pension at the date of death could be significantly less than the value at the point probate is granted, perhaps 12 months or more later. Conversely, the value of a pension can also go down, but either way it tends to be an unsatisfactory outcome for the person who inherits and needs to be carefully managed by their advisors.

There are other complications. Private pensions, for example, are different from the State Pension, which has its own set of rules in terms of who can inherit and how much based on the amount of National Insurance contributions made by husband and wife (or civil partner). And then there are Defined Benefit pensions, family pension trusts and a myriad other different pensions which also have their own rules, and which once in a while can cause a severe headache to those tasked with resolving them.

The point is perhaps a simple one: what first appears to be one of the easier elements of the probate process to settle can end up being one of the most difficult, and certainly it’s an area where specialist pensions advice should be sought.

 

Luke Cheadle is Head of UK Operations for The Estate Registry

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