When you die, your estate is passed to your personal representatives for administration. It is the duty of the personal representative to collect in all assets, pay all liabilities and distribute to the relevant beneficiaries in accordance with the terms of your Will or, if none, in accordance with the intestacy rules. Many institutions (typically, bank accounts over £5,000 and real estate) require that a grant of representation be obtained before the assets can be released. This process can take several months and can be expensive.
Nominated assets are assets that an individual owns but the benefit is appointed to a nominated beneficiary who will receive the assets when the individual dies. These assets do not form part of a deceased’s estate for inheritance tax (IHT) purposes as the deceased is not beneficially entitled to them during their lifetime. A grant of representation is not required to release the assets and they pass directly to the beneficiary, rather than to the personal representative, on receipt of the Death Certificate.
It is important to note that, while nominated assets do not form part of the deceased’s estate for IHT purposes, they do form part of the beneficiary’s estate. This is because the assets are essentially held on trust for their benefit. This is an important consideration for married couples seeking to maximise their joint estates for the benefit of their children. Naming your spouse on your nomination form brings the assets back into the joint estate, making them chargeable to IHT on the second death. However, if the children are named in the nomination form, IHT is avoided.
Pensions, life insurance policies, death in service benefits and accounts with certain friendly societies can all be nominated to a chosen beneficiary by completing a nomination form.
Whilst it is possible to nominate these assets to your personal representatives or to your own estate, there are advantages to nominating a third-party beneficiary, such as:
- Allowing smaller estates to be administered in a more cost-effective way, bypassing the need for a grant of representation.
- Ensuring that anyone who is financially dependent on you does not find themselves in difficulties whilst waiting for a grant of representation to be obtained and for the estate to be distributed.
- Providing an immediate source of funds to assist with payment of any IHT liability of the estate, which must be settled before a grant of representation can be issued. Beneficiaries of nominated assets may agree to lend some of those funds to the personal representative for the payment of IHT.
If you do not complete the nomination form, the institution may automatically appoint the funds to your spouse or other family member, as they see fit.
It is also important to note that the nomination form is not a legally binding document and the institution is therefore not bound to honour your wishes although, in practice, they typically will.