Understanding Discounted Gift Trusts
Up to 60 CPD minutes
Introduction
Discounted gift trusts are a popular IHT planning solution allowing an IHT effective gift to be made yet still allowing the settlor to receive regular payments from the trust. To form part of a comprehensive estate planning strategy, advisers need to understand who DGTs can benefit, the implications of using them during the settlor’s life and what happens on the settlor’s death.
This module should take around 60 minutes to complete. It includes a short self -assessment quiz to test what you have learned and a 60 minutes CII/PFS accredited CPD certificate can be claimed.
This module should take around 60 minutes to complete. It includes a short self -assessment quiz to test what you have learned and a 60 minutes CII/PFS accredited CPD certificate can be claimed.
Outcomes
On completion of this module you should be able to:
- Explain the different benefits and considerations when using single and joint settlor DGTs
- Describe how a discount reduces a gift’s value for IHT and the factors which can impact any discount offered
- Determine the potential tax charges which could apply to a DGT during the settlor’s lifetime and following their death
Learning material
This module covers how DGTs are created, the use of single or joint settlor plans, trust investments, loan repayments and the treatment of any outstanding loan during the settlor’s life and on their death.
CPD minutes: up to 60
Read the discounted gift trust guideOpens in new windowCPD minutes: up to 60
Post learning assessment
Question 1
Which of the following statements is FALSE about single or joint settlor DGTs?
a. Under a joint settlor plan, the full amount of retained payments will usually continue after the first settlor’s death.
b. Single settlor DGTs could be deemed as gift with reservation if a spouse can benefit during the settlor’s lifetime.
c. Using single settlor trusts is practical where each settlor wants to name different beneficiaries and/or trustees.
d. Joint discounts are based on combined life expectancy, split equally between the settlors - so would give same discount as two single settlor DGTs.
a. Under a joint settlor plan, the full amount of retained payments will usually continue after the first settlor’s death.
b. Single settlor DGTs could be deemed as gift with reservation if a spouse can benefit during the settlor’s lifetime.
c. Using single settlor trusts is practical where each settlor wants to name different beneficiaries and/or trustees.
d. Joint discounts are based on combined life expectancy, split equally between the settlors - so would give same discount as two single settlor DGTs.
Question 2
Which of these is NOT a factor which can impact the discount offered on a DGT?
a. The life expectancy of any beneficiary.
b. The level of fixed retained payments chosen.
c. The cost of insurance on the settlor’s life to protect the income stream in event of early death.
d. Whether income tax will be due on any fixed retained payments.
a. The life expectancy of any beneficiary.
b. The level of fixed retained payments chosen.
c. The cost of insurance on the settlor’s life to protect the income stream in event of early death.
d. Whether income tax will be due on any fixed retained payments.
Question 3
Damian created a single settlor discretionary discounted gift trust paying £500,000 to the Trustees. He received a discount of £175,000, based on retained payments of 5% (£25,000pa). Sadly, Damian died unexpectedly four years later when the bond was worth £525,000. Which value is included in Damian’s estate?
a. £500,000.
b. £325,000.
c. £400,000.
d. £525,000.
a. £500,000.
b. £325,000.
c. £400,000.
d. £525,000.
Check your answers
Which of the following statements is FALSE about single or joint settlor DGTs?
d. Joint discounts are based on combined life expectancy, split equally between the settlors - so would give same discount as two single settlor DGTs.
d. Joint discounts are based on combined life expectancy, split equally between the settlors - so would give same discount as two single settlor DGTs.
Which of these is NOT a factor which can impact the discount offered on a DGT?
a. Life expectancy of any beneficiary.
a. Life expectancy of any beneficiary.
Damian created a single settlor discretionary discounted gift trust paying £500,000 to the Trustees. He received a discount of £175,000, based on retained payments of 5% (£25,000pa). Sadly, Damian died unexpectedly four years later when the bond was worth £525,000. Which value is included in Damian’s estate?
b. £325,000.
b. £325,000.
Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.