Pilot trusts - Case Study
The People
BE had an estate of £1.5 million. She had a son who had three children of his own, all of whom were minors.
The Problem
BE wished to leave everything to her son, this would not in itself pose a problem. However, BE wanted to make provision in her will that, if her son were to die before her, except for a cash legacy to her daughter-in-law, she wanted everything to go to her grandchildren equally, on reaching the age of 25. Due to the value of the estate, if the funds were left to the grandchildren subject to reaching age 25 and they were under 25 at that time, the funds would be retained in trust and there was potentially additional IHT of over £70,000 which would be paid when they received their inheritance.
The Solution
On our advice, BE set up 5 pilot trusts (i.e. trusts set up now with limited assets of £10 each). She then redrafted her will to split her estate equally between the trusts. As each trust would be worth less than the Inheritance Tax nil rate band, there would be no additional IHT payable when funds were paid out of the trust. In addition, her son, as a trustee, could decide which of the trust funds he wanted to retain for himself and his wife and which could be given to or held in the trust for the grandchildren. This flexibility means that he can gift funds straight from the trust to the grandchildren without having to worry about surviving seven years from the date of the gift.
Who to contact
Paul Tobias
Senior Partner, Head of Trusts & Investments
Email
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