What happens to Premium Bonds when someone dies?

From: Kings Court Trust 

When someone passes away, all of their assets must be dealt with as part of the estate administration process. This can include property, personal belongings, cash, bank accounts, and more. One asset that is not as commonly discussed is Premium Bonds. However, Premium Bonds form part of an individual’s estate just like a bank or savings account and therefore must be dealt with when handling the assets.

This blog aims to answer what Premium Bonds are, how they work, and what to do with an individual’s Premium Bonds after they have passed away.

What are Premium Bonds?

A Premium Bond is an investment product held with the government by National Savings and Investment (NS&I). The government pays interest on these Bonds, and this interest is distributed by a lottery in a monthly prize draw. Therefore, the Bond itself doesn’t earn interest. Premium Bonds can be bought online, over the phone, or by post.

How do Premium Bonds work?

Each £1 held as a Premium Bond is given a unique number, and if this number is drawn, the owner of the bond will win a prize. Therefore, for example, if you invest £500 you will be assigned 500 bond numbers, each giving you one chance to win a prize.

A cash prize can be anywhere between £25 and £1 million and is free of tax. Prizes are either paid straight into the individual’s bank account, by cheque through the post, or invested back into more Bonds.

Investors will need to purchase at least £25 worth of Bonds, with the maximum amount an individual can invest being £50,000. The owner of the Premium Bonds will begin to be entered into the monthly draw once they have held the Bonds for a full month.

What happens to someone’s Premium Bonds when they die?

Unlike most other assets, Premium Bonds cannot simply be passed on to beneficiaries of the estate, as they cannot be transferred into someone else’s name. When administering someone’s estate and dealing with Premium Bonds, there are two main options available to the Executor(s):

Claim the Premium Bonds immediately – they can be repaid as part of the estate administration process, and the funds from this sale will be included as part of the total estate value. Therefore, beneficiaries will be able to receive this quickly as part of their inheritance. In this case, the Bonds will only be eligible for prize draws in the month that they are claimed, so it’s likely that only the value of the Bonds will be received.
Cash them out later – NS&I will hold the Premium Bonds for 12 months after the death of the owner, during which time they are eligible for the prize draw. After this time period, the Executor can claim any prizes won during this time, as well as the face value of the Bonds, meaning that the overall value of them could increase for beneficiaries. However, this will delay their inheritance. Repayment can be claimed at any time during these 12 months.

It’s important to consider that although the winnings are not taxable when won, they are included in the estate for the purposes of Inheritance Tax (if applicable). Therefore, even if you think the deceased didn’t own Premium Bonds, it’s important to doublecheck when calculating the net value of the estate. However, there are excepted situations where Inheritance Tax will not be payable on the estate. 

How to claim Premium Bonds after a death

The Executor can trace and claim Premium Bonds belonging to the deceased either online or by post. If applying by post, they must include a copy of the death certificate and the Will. If applying online, the Executor must complete a bereavement claim form. NS&I will review the application before potentially requesting a Grant of Probate.

Do you need probate for Premium Bonds?

Probate, or a Grant of Probate, is the legal document that grants the Executor the right to administer the deceased’s estate. It is not required upon every death, as if the deceased did not own any sole assets or had an estate low in value, the assets can usually be sold or transferred without probate. Each financial institution has its own individual threshold for how much the estate is worth before probate is required, which is generally between £5,000 and £50,000. Learn more about probate thresholds here.

These thresholds also affect Premium Bonds. Similar to banks and building societies, NS&I has a limit on how much money they can release without a Grant of Probate. This threshold is £5,000; therefore, if the deceased owned Premium Bonds of a value of over £5,000, probate will be required.

If someone dies without a Will, a Grant of Probate is instead known as Letters of Administration, but it grants the individual the same legal right to administer the estate. In these cases, the person responsible for dealing with the estate is known as an Administrator.

Do I have to manage Premium Bonds myself?

If you’re acting as an Executor or Administrator on an estate, managing Premium Bonds is one of many tasks that must be undertaken. Estate administration can involve complicated paperwork, tax work, and legal jargon that not everyone feels able to deal with themselves. Whilst you can choose to handle this process yourself, help is available. 

At Sussex Will Writers, we have been helping clients navigate the choppy waters of Probate and Estate Administration for many years. Contact us on 01903 533681 to talk about your individual situation and circumstances or sign up to one of Steve’s weekly Zoom or telephone call slots using the form below. 

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