The discounted gift trust 6 Who is involved with a discounted gift trust – discretionary version? There are normally three parties involved in setting up a Discounted Gift Trust: You, the settlor, either on your own (as a single settlor) or with someone else, such as a spouse or civil partner (as joint settlors). The settlor invests a cash sum in a bond (the trust fund) and then transfers the legal ownership of this investment to their chosen trustees. The trustees are the legal owners of the assets, and they manage the assets for the benefit of the beneficiaries. They are also responsible for dealing with and distributing the trust fund on the settlor’s death. Trustees can be friends, family, trusted individuals; or you can use the services of a professional trustee provider. The beneficiaries of a discretionary version of the discounted gift trust are groups or ‘classes’ of people who may benefit from the trust following the settlor’s death. This could be, for example, ‘my grandchildren’, including future grandchildren as yet unborn. The trustees will use their discretion to decide who should benefit from the trust, and although you can make your wishes known to them, they will ultimately decide. With discounted gift trusts, settlors (including your spouse or civil partner if they are a settlor) are only able to benefit from the right to receive withdrawals. There may also be a fourth party involved, known as the protector. The protector monitors the trustees and ensures that their actions are in the best interest of the beneficiaries. You may appoint yourself as the protector. Normally for a trust to be effective in reducing an IHT liability, the settlor is not able to access or benefit from the trust fund. A discounted gift trust is different in that it enables the settlor(s) to benefit from regular withdrawals. This right to receive the withdrawals takes precedence over the other beneficiaries’ right to the trust fund. The remainder of the trust fund is held for the benefit of the beneficiaries. Why use a discounted gift trust?