The other names for this type of trust are Family Trusts or Spousal By-pass Trusts. It’s nothing to do with airline pilots!
A Pilot in this sense is the one that goes before, the forerunner, like this tug guiding the Concordia. Hence the Pilot Trust is set up during your lifetime with a notional £10, say, attached to it as the asset. This is the forerunner, as it is added to later on. Maybe on death, from a Will, a life cover, or a pension plan death benefit.
What is the point of a Pilot Trust?
The Pilot trust is a discretionary trust with a list of potential beneficiaries contained within. So the assets of the trust do not belong to any one individual beneficiary.
Say you are traditionally married with a wife and children, but your wife is unlikely to need all the life cover or pension fund on your death. You can arrange for the life cover or pension to be directed to the trust on your death. This could save the monies going to your wife’s estate and increasing the Inheritance Tax bill on second death should you die first. She could however still benefit if she was a potential beneficiary. The monies could be distributed or held depending on circumstances. The children could benefit immediately on your death free of Inheritance Tax or monies could be held for wife, children, grandchildren etc.
There are many other circumstances and reasons where this makes sense and it’s not always to save Inheritance Tax.
This is where you need to concentrate. Each trust created on a different day has it’s own Nil Rate Band (currently £325,000). Any assets over that value will be subject to the 10 yearly inheritance tax charges under the “relevant property” tax regime.
So if you had a pension Death in Service benefit to redirect to a trust like this of £900,000 you are likely to be advised to create 3 trusts on different days so as to avoid the 10 yearly inheritance tax charges. So £900,000 divided by 3 = £300,000 into each trust and a little space to allow for some growth. If it grows beyond the Nil Rate Band any excess will be subject to the 10 yearly charges.