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Wills and Pilot trusts – a match to save tax

30 March 2015

As we now have some certainty on how trusts will be taxed, a new approach to structuring Wills can be applied.

One of the most common instructions we receive when preparing Wills is to leave everything to the survivor (if appropriate), and then to a discretionary trust for the children and grandchildren.

If the taxable estate is of a reasonable size, particular care should be taken on how to minimise the ongoing taxation of any trust created by a Will.

I believe that the best way to achieve this is for clients to create a pilot trust during their lifetime. Assets can be added into this trust by the Will, instead of setting out trusts in their Wills.

A trust created during lifetime can be timed so that it benefits from a full nil rate band.  If a trust is created on death by Will, the nil rate band of that trust will depend on the testator's history of gifts, in the seven years prior to death.

For a client engaged in active tax planning it is likely that there will be gifts 'on the clock', which means that setting up a trust at the right time could significantly reduce the amount of ongoing tax.

 

Case Study

As an extreme example, if a client had given away £330,000 to help with a house purchase, six and a half years before her death, a discretionary trust set up by her Will would have no nil rate band at all.

The difference between a trust with no nil rate band, and a trust with a full nil rate band available is almost £20,000 in Inheritance Tax every ten years, so the saving for a testator's loved ones could be substantial.  A badly timed gift can not be cured by a Deed of Variation, so there could be great benefits in carrying out planning at an early stage. 

 

If  you would like to discuss any aspect of this article further, please contact the Wrigleys' Private Client team on 0113 244 6100.

You can also keep up to date by following Wrigleys Private Client team on Twitter here

The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors

March 2015

 

 
 
 

 

 
 
 
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