MANY people who are in business now, or who are already retired having run successful companies, may be looking for ways of passing on any accumulated wealth to provide for future generations.

Often this has been by way of a trust, since the thought of giving large sums of money outright to 18-year-olds is terrifying.

Before the 2006 Finance Act, grandparents provided for their grandchildren by way of a favourable form of trust.

Known as accumulation and maintenance trusts, they allowed for income to be paid to the young people while the capital was looked after by the trustees.

Since 2006, such trusts have all but disappeared.

More recently, the common way of leaving assets in trust has been via discretionary trusts, but these may be liable to inheritance tax (IHT) on every tenth anniversary, and when capital is paid out to beneficiaries between each anniversary.

If grandparents want the flexibility of a discretionary trust without the impact of IHT every ten years, they should look at pilot trusts.

A trust is entitled to its own nil rate band for IHT, as long as each trust is created on different days.

The advice is to form small pilot trusts on different days now, and then a further trust on death. Each trust would only hold a small sum of cash with nothing further to be added during the grandparents’ lifetime.

Their wills will then leave a gift between the pilot trusts and the trust formed on death.

For example, a grandfather has three grandchildren and £300,000 in cash. He forms two pilot trusts on separate days now and a further trust in his will.

The pilot trusts operate with only a token sum of money. The need for annual tax returns is dispensed with, so, apart from making ten-yearly returns of capital, there are no real administration costs.

On his death, the £300,000 is split between the three trusts, each qualifying for their own nil rate band. Therefore, the overall gift to the grandchildren is protected from ten yearly IHT charges until it exceeds £900,000 in value at today’s rates.

■ Val Hutchinson is an inheritance tax consultant with BHP Law. For more information, she can be contacted on 0191- 221-0898.