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What is Trust De minimis?

The term De minimis is a Latin expression meaning minimal things, that are so minor as to be negligible, trivial or trifling. The term itself is often used to describe exemptions in government rules and regulations. For example where tax is not payable.

Trust De minimis Explained

When arranging a Will for a client that requires the proceeds of their estate to be directed to one or more discretionary trusts, a small De minimus sum (usually £10) is required to create each pilot trust.

This sum is often referred to as the Trust De minimus amount.

Trust De minimis is required at the outset because in order to ‘create’ a Trust the Settlor (ie the client) needs to settle something to the Trustees. The Trust De minimis is the initial settlement being made by the Settlor of the Trust to their Trustees, so as to legally create the Trust.

Trust De minimis is not classed as a fee or levy or charge and is not subject to VAT. Trust de minimis amounts are settled into a separate ‘Client Account’ and do not form an asset of the tax and trust corporation company that is setting up the pilot trusts.

What is a Pilot Trust?

A Pilot Trust is set up alongside a Will during a testator’s (the person gifting their estate) lifetime. Pilot Trusts are discretionary trusts and are created in order to benefit the beneficiaries named in the Will.

The trustees of the Trust can be the same as the nominated trustees in the Will and their role and responsibilities are laid out by the testator in the memorandum of wishes attached to the trust.

A good way to explain this is to imagine a hot water boiler system. Which in order for it to be ready to provide hot water when you turn on the tap. It requires a pilot light to initially be lit and subsequently kept alight in order to serve as an ignition source for a more powerful gas burner to heat up your water.

A Pilot Trust is effectively the Pilot Light, the Trust de minmis sum lights the flame. Once lit it’s in place so in the event of the death of the Settlor the discretionary trust is ready to afford the estate the protection of the trust for the benefit the chosen beneficiaries