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Pilot Trusts

In simple terms a pilot trust is one that is set up during the lifetime of the testator ready to receive property on their death by a specific legacy in the Will. Also know as ‘feeder’ trusts they are normally discretionary in function and can be created with as little as £10. The trustees can be a lay person such as a spouse or a professional trustee. The Will would give a specific legacy to leave assets into the trust i.e. “I GIVE the sum of £100,000 to the trustees of the Smith Family Trust Settlement dated 15 January 2001”. It is also advisable that the testator leave a letter of wishes with the trustees or the Will explaining why the trust was created and how the beneficiaries should be treated. I pilot trust is a useful tool when the testator wishes to benefit different sections of the family or if a particular beneficiary has capacity issues. Unmarried couples may also find pilot trusts useful. As there is no spousal exemption to utilise they could leave their nil rate band to the trust with the residue held for the benefit of the cohabite for life. The two trusts would be entirely separate and the funds in the pilot trust would be available to any children during the surviving cohabitees lifetime. Pilot trusts are relatively easy to set up and can be done at the same time a testators Will is made. HMRC have to be notified of the existence of the trust but whilst the property in the settlement is less than £1000 and all the trustees are UK resident, no inheritance tax returns are required to be submitted so there are no ongoing costs until the testator dies. If you have a client who could benefit from a pilot trust or you think you could benefit from a pilot trust contact us for further details

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