If the deceased has nominated their Death in Service payment then this amount would normally pass outside the deceased’s Estate for Inheritance Tax purposes, often resulting in huge tax savings for the Estate. However, if the Death in Service has not been effectively nominated, or if the Trustees exercised their discretion to do so, the sum could be paid directly to the deceased’s Executors. If this were to be the case then this sum is likely to be subject to Inheritance Tax at the full rate of 40% and could result in an otherwise non-taxable Estate becoming taxable and, therefore, more complex and time consuming to administer.
Another factor to consider in the event that no nomination has been made, or that a nomination fails, is that if the sum is paid to the executors, it would then pass in accordance with the deceased’s Will or Intestacy. This could result in different individuals receiving the Death in Service payment than those originally intended or expected.