Pilot trusts and Will planning

By Tolley

The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Pilot trusts and Will planning
  • The tax advantage of pilot trusts
  • Changes affecting the advantage of pilot trusts
  • Exceptions to the same day addition rule
  • Effective date and protected settlements

A ‘pilot trust’ is one that holds a nominal amount of property (typically a small sum of cash) and does not become active until further funds are added later. The later addition is sometimes made on the client’s death by a gift in his Will. The use of pilot trusts in conjunction with Wills became a popular planning tool for mitigating inheritance tax for the next generation of beneficiaries. It worked by fragmenting the deceased estate after death so that it was held in more than one trust. Going forward, inheritance tax would be reduced because each trust would benefit from its own nil rate band.

The advantage of pilot trusts in Will planning was curtailed by changes introduced by F(No 2)A 2015. Different rules apply to occasions of charge arising on or after 18 November 2015, the date of Royal Assent. However, Wills and trusts created before 10 December 2014 may still benefit from the planning.

This guidance note explains:

  • how pilot trusts could deliver a tax advantage
  • the effect of the current rules
  • the transitional concessions
The tax advantage of pilot trusts

Although the advantages outlined in this section were effectively removed by F(No 2)A 2015, practitioners willstill encounter situations where the planning has been put in place.

A client who wants his estate to be held in trust after his death can establish a trust in his Will (see the Will trusts guidance note). If the trust in question is a relevant property trust, it willbe subject to IHT charges on 10-year anniversaries and when assets leave the trust (see the Relevant property guidance note).

Relevant property trusts can each have their own nil rate band and so the ideal solution to mitigate

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