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What we Offer: TRUSTS
The term "Trust" refers to the legal relationships created (in lifetime or on death) by a person (known as the Settlor) when assets have been placed under the control of a trustee for the benefit of a beneficiary.

There are three major types of Trust:

DISCRETIONARY TRUSTS WITHIN WILLS

What does transferable Nil-Rate Band (NRB) mean?

Everyone is entitled to a nil-rate band allowance and only assets above this amount are taxable but between spouses and civil partners no tax is due. This means if a person leaves everything to their spouse, they have used none of their NRB.

Where previously the NRB of the first person to die (or any unused percentage) would have been lost, now the unused amount can be transferred to the surviving spouse or civil partner.

Great news?
Maybe, but the transferable NRB is not automatic. On second death, the Will s Executors must satisfy the Inland Revenue that the allowance of the first person to die was never utilized. This involves obtaining the original Will of the first person to die, their Death Certificate, Marriage Certificate, and, any records of gifts they may have made seven years prior to their death.

In many cases this means searching for records from years ago which may, no longer be in existence. Yet if these records cannot obtained the Inland Revenue may not accept the claim, meaning the estate of both spouses will have bilked onto the second person-but with only one NRB allowance being permitted.

Proof of a NRB Discretionary Trust written within the Will of the first person to die confirms how much NRB allowance was used.

This is not the only valid reasons for incorporating DT's.

• Assets in a DT belong to the Trust-not to the beneficiaries-thus shielding the assets from future uncertainties such as community care fees and divorce.
• Gifts from the DT avoid the 7-Year-Rule
• Assets can be lent to beneficiaries
• A letter of wishes guides the trustees on the purpose of the Trust.
• For those with businesses, including a DT within a Will provides a way of capitalizing on Business Property Relief.

As shown, the transferable NRB is anything but straightforward and Executors are not always able to obtain the necessary proof.

Of course, every case is different and what might be the best for one may not be true for another, but Discretionary Trusts always gives flexibility, control and the peace of mind that your wealth is secure across the generations.

ACCUMULATION AND MAINTENANCE TRUSTS
These trusts are set up for the benefit of infants until they reach the age of 25. Until that date, the trustees would manage the capital, spending the trust income on the beneficiaries if it was desirable and saving it for them if there was no reason to distribute it.

Although there are many other variants of trusts, Pilot Trusts, Bare Trusts, Business Property Relief Trusts etc, they are variants of the three above and are certainly well worth considering to protect your family or business and loved ones from third party interests.

PILOT TRUSTS AND ESTATE PLANING
Following the Finance Act 2006 the default setting for the taxation of trusts is called the 'relevant property regime'. This means that virtually all lifetime trusts and certain will trusts shall be subject to an Inheritance Tax charge every 10 years and when assets leave the trust.

The calculation of such charges includes the value of all 'related settlement', namely other trusts set up on the same day (i.e. the Testator's date of death). Therefore if you have several trusts established under your Will it is likely that they will not be as tax efficient as they should be.

What are Pilot Trusts?
• Pilot Trusts are trusts set up during the lifetime of the Testator and which receive property on the death of the Testator via a specific legacy in a Will. For this reason there are also sometimes refereed to as 'Feeder Trusts'.

• The pilot trusts would normally be discretionary in format and are created with a trust fund as little as £10. The Trustees could be the Testator and their spouse or civil partner or whomever is suitable to act as a Trustee in the Circumstances.

• The Will would then have a specific legacy which would 'feed' assets in to the trusts, i.e. 'I GIVE the sum of £150,000 to the Trustees of the Joe Bloggs Settlement dated 1st January 2000'. The Testator should also leave a letter of Wishes with the Trustees of the pilot trust explaining why the trust was created and whom it should primarily benefit.

When would I use the Pilot Trust?
• If you wish to create trusts to benefit different sections of your family (for example you wish to have a discretionary trust of your residue (to benefit your children or grandchildren) and would also like a smaller amount to be held for the benefit of a specific niece who has capacity issues. It would be wise to create a pilot trust for the benefit of your niece which could also benefit any family she may have. The pilot trust could also have different trustees to you executors if that was suitable (for example the niece's parents).

• Unmarried couples may also find pilot trust useful. As there will be no spouse exemption it may be wise to leave the nil rate band to a discretionary pilot trust with the residue held for the cohabitee's benefit for life. The two trusts would not be related and funds would be available to any children during the cohabitee's lifetime due to pilot trust.

• If you have a substantial estate you may wish to consider creating multiple pilot trusts simply to increase the availability of nil rate bands across the trusts. This would have to be offset by the increased administrative workload and compliance requirements that multiple trust would involve.

• Consider the grandparent leaving £ 750,000 on the trusts of her three grandchildren at 30. Following the Finance Act 2006, the trusts shall be subject to ten-yearly IHT charges and a final IHT exit charge. If the grandparent had created three pilot trusts (each set up on separate days) and left the trustees of each £250.000 then each trust would have its own nil rate band going forward and significantly reduce the overall IHT exposure.

What formalities are required in setting up a Pilot Trust?
Pilot Trusts can be set up easily and quickly and it can be done at the same time as a Testator drafts their Will. HMRC will need to be notified of the trusts existence but whilst the property in the settlement is comprised of cash below £1000 and all the trustees are UK resident, no further Inheritance Tax returns will need to be submitted. The Pilot Trust documents can therefore be stored with the settler's Will until such time as it is needed.