The discounted gift trust 12 How the trust works in practice Mrs Roberts is aged 60, retired and in good health. She has an estate valued at £450,000 and she wishes to reduce her potential IHT liability. She has £100,000 available to invest, but also wants to take regular monthly withdrawals to supplement her pension, although she requires no further access to the investment. Upon her death she would like her children, Sally and Jill, to benefit from the trust fund. Her financial adviser recommends that she invests into a Collective Investment Bond subject to a discounted gift trust – bare version. Settlor’s fund – the ‘discount’ The value of Mrs Roberts’ right to the requested regular monthly withdrawals is calculated taking account of her age and health plus her levels of withdrawals. We estimate the discount to be £71,319. Residual fund – the discounted gift This is Mrs Roberts’ investment less the discount. £100,000 – £71,319 = £28,681. This part of Mrs Roberts’ investment is immediately outside her estate for IHT purposes. This is a potentially exempt transfer (‘PET’) and falls outside her estate after seven years. Mrs Roberts invests £100,000 into the bond. The bond is transferred into a discounted gift trust – bare version. Mrs Roberts requests that she receives 5% of the investment (£5,000) each year, paid monthly. Any growth within the bond will be free from IHT. Case study 1 This shows how the bare version of the discounted gift trust works for a single settlor case. It also assumes the settlor has already utilised the available nil-rate band and exemptions.