On-Demand Events
Deconstructing the Discounted Gift Trust
15 May 25 3 min read
Inheritance Tax continues to be a hot topic so its important to consider all available options when creating a strategy to mitigate it. Discounted Gift Trusts are a useful tool which provide the opportunity to reduce the value of an estate while providing a regular payment stream for the settlor. However, this ability to “kill two birds with one stone” leads to a trust structure that is often misunderstood and misrepresented.
Neil Macleod (Senior Technical Manager, M&G Wealth)
He examined the mechanics of the discounted gift trust, the factors to consider when recommending one, and the pitfalls to watch out for.
90 minute video (approximately) I Structured CPD accredited by CII and CISI
Learning outcomes
By the end of this session, you will be able to:
- Explain how a discounted gift trust is structured and how they are set up.
- Describe the initial and ongoing IHT implications of setting up a discounted gift trust.
- Explain how the chargeable event regime applies to investment bonds held in discounted gift trusts.
- Identify clients who could benefit from using a discounted gift trust as part of their IHT planning strategy.
To claim your CPD certificate, test your knowledge with the questions below.
Write down your answers to each of the following questions and check your answers when you click to claim your CPD certificate on the link below
1. Eva sets up a discounted gift trust with £500,000. After underwriting it is confirmed that her discount will be 34%. Eva dies 5 years later when the value of the trust is £532,000. How much is the failed gift that is added back into Eva's estate?
A. £500,000
B. £532,000
C. £170,000
D. £330,000
2. Marina sets up a discounted gift trust from which she will recieve £2,000 p.m. After 7 years Marina realises that she no longer requires the withdrawals to meet her expenditure. Whilch of the following statements is true?
A. Marina can stop the withdrawals without any IHT implications because seven years have now passed
B. Marina can make exempt gifts of £2,000 p.m. to her son as the gifts are out of surplus income
C. If Marina stops the payments this will be treated as a gift for IHT purposes
D. The trustees have discretion over how much to pay to Marina on a monthly basis
3. A single settlor discretionary trust is set up with £400,000. The settlor recieves payments of £1,500 p.m. and the ongoing advice charge is based on a flat rate of 0.25% p.a. of the amount invested. Assuming no other withdrawals and the settlor is still alive, at the end of which policy year will an excess gain arise?
A. At the end of the 20th policy year
B. At the end of the 21st policy year
C. At the end of the 22nd policy year
D. At the end of the 23rd policy year
1. Eva sets up a discounted gift trust with £500,000. After underwriting it is confirmed that her discount will be 34%. Eva dies 5 years later when the value of the trust is £532,000. How much is the failed gift that is added back into Eva's estate?
A. £500,000
B. £532,000
C. £170,000
D. £330,000
2. Marina sets up a discounted gift trust from which she will recieve £2,000 p.m. After 7 years Marina realises that she no longer requires the withdrawals to meet her expenditure. Whilch of the following statements is true?
A. Marina can stop the withdrawals without any IHT implications because seven years have now passed
B. Marina can make exempt gifts of £2,000 p.m. to her son as the gifts are out of surplus income
C. If Marina stops the payments this will be treated as a gift for IHT purposes
D. The trustees have discretion over how much to pay to Marina on a monthly basis
3. A single settlor discretionary trust is set up with £400,000. The settlor recieves payments of £1,500 p.m. and the ongoing advice charge is based on a flat rate of 0.25% p.a. of the amount invested. Assuming no other withdrawals and the settlor is still alive, at the end of which policy year will an excess gain arise?
A. At the end of the 20th policy year
B. At the end of the 21st policy year
C. At the end of the 22nd policy year
D. At the end of the 23rd policy year
Before collecting your certificate, please take a moment to provide us feedback on this session, please email prudential.distribution.team@prudential.co.uk
Complete the form below and we’ll email your CPD confirmation to you. Please use the email address that you would usually use when contacting us.
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