IWC can help you utilise pilot trusts as a means to avoid inheritance tax and safe-guard your estate for the beneficiaries. IHT may be unfair but with careful estate planning there are ways you can legally lessen liability and relieve your loved ones of the burden. If you would like to find out more about the setting up of trusts to mitigate IHT, call us on 0800 612 6105.
What are Pilot Trusts?
They are sometimes referred to as `feeder trusts,` are a type of discretionary trust, arranged during a person`s lifetime. They are easy to set up with just a £10 deposit. Although chiefly designed to uphold the value of your estate for future generations, without restricting access to funds for the surviving spouse, they offer many other benefits.
Protection - A trust is a way of safe-guarding your estate. You can use it to preserve funds for your grandchildren when they reach adulthood. Funds are protected for beneficiaries from creditors, future divorce claims or care fees. It is a way to ensure that children and grand-children from previous marriages receive their entitlement. You can leave your surviving spouse an income, upon their death the remaining funds will be bequeathed as you wished.
Avoid Disclosure - A will becomes a public document; bequests to pilot trusts enable you to avoid such disclosure. Thus, allowing you to privately bequeath funds.
Not Assessed - They are not assessed when beneficiaries are means tested. This means the inheritance will not affect any future claims for state benefits. If a surviving spouse requires long term residential care, the Local Authority will not include the trust fund when assessing their wealth. This can avoid costly health care fees which will deplete the funds of the estate for future generations.
How you can use them to lessen IHT
If used in conjunction with a well written will which includes an Immediate Post Death Interest Trust, a pilot trust could be used to reduce a person`s estate and negate inheritance tax. Generally, a person would calculate the value of their total assets, then divide this amount by the current nil-rate band (£325k as of April 2009) and set up 1 trust for each NBR.For example, if your assets totalled £975K and the nil-rate band was still £325k you would set up 3 pilot trusts.
When the estate passed to the spouse via the IPDI Trust there would be no inheritance tax to pay because of spouse exemption rules. Over the years the spouse could pass money to the trusts. On the death of the second spouse,all of the estate could be in the trusts and thus there would be no inheritance tax to pay.
If you are not married, they are invaluable to lessen the IHT burden for your partner.
They are particularly useful if your estate will receive funds from a pension or death-in-service benefit when you die. This is transferred directly to the trust and therefore, was never part of the estate.
The IHT savings can be enhanced by providing your survivor with an income in the form of a loan from the trust. This then creates a debt on their estate. On the survivor`s death, the trust loan will have to be paid back from the estate, reducing it further for IHT purposes.
For more help and information about pilot trusts, call IWC now on 0800 612 6105.