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The flexibility of the existing death benefit rules for pension schemes has cast doubt over the use of bypass trusts.
However, they can have their place with regard to the element of control that they can provide.
Whilst pensions allow for tax-free investments, bypass trusts offer the testator a much greater say in the way in which funds are distributed following their death.
An example of this is where someone wishes to place restrictions on how the pension death benefits are taken by beneficiaries. Rather than giving them access to the whole pot at one time, they often want to distribute it over their lifetime, so they can benefit at regular intervals. However, pensions do not offer this function, simply awarding all access once the beneficiary is 18.
Another restriction with pensions is the control over the funds where multiple marriages are concerned. Whilst someone may wish for their children from a previous marriage to benefit, the administrator of the scheme would not necessarily need to seek out their wishes, should their current spouse pass away.
In light of these factors, bypass trusts are seen as offering greater freedom as to how their funds are distributed post death, given the ability it provides for members to appoint trustees and provide clear instructions.
Whilst control could certainly be considered a benefit of bypass trusts, they do come with their own financial restrictions if death occurs after the individual turns 75. Therefore talk to your Independent Financial Adviser, who will let you know if it is right for you to set up a By-Pass Trust attached to your Pension.