The discounted gift trust 8 The following fictional example is for illustrative purposes only and is based on an investment of £250,000 in a bond subject to a discounted gift trust. Settlor’s fund – the discount Based on the value of the right to withdrawals from the trust fund during the settlor’s lifetime (£100,000). Residual fund – the discounted gift The remaining investment and all other rights (£150,000). Immediately outside the settlor’s estate Potentially exempt transfer The settlor sets up a bond with £250,000. The bond is transferred into a discounted gift trust. Any growth within the bond will be free from IHT. The value of the settlor’s right to regular withdrawals (the ‘discount’) is calculated based upon factors such as age and health of the settlor, plus the level of withdrawals. We estimate the discount to be £100,000. The discounted gift is a potentially exempt transfer (PET). This is your investment less the discount. This value falls outside the settlor’s estate after seven years. £250,000 minus £100,000 = £150,000.