I’m dealing with an estate where a Discounted Gift Trust was set up 5.5 years before the settlor’s death. It was set up with Old Mutual and was held in an onshore investment bond. It was paying a regular income of £416.66 per month to the settlor.
The original transfer value (2018) was £101,010, however, the Financial Advisor has sent me both the original transfer value as well as a lesser figure of £79,297 which she is calling “Probate Value,” settlor died in 2023.
I’ve never dealt with one of these, particularly not where the settlor died within 7 years. The Settlor’s full NRB was available when the original transfer was made, however, I’m unsure when adding this to my IHT403 whether or not I should be adding the original £101,010 figure or the £79,297 given that it’s a failed CLT.
Any assistance or thoughts are appreciated (and I apologise if this seems like a stupid question!).
The settlor should have received written confirmation from the bond provider of the value of the DGT for IHT purposes when it was set up. If this cannot be located, my thoughts are as follows:
With a discounted gift trust, the amount actually invested is discounted to take account of the actuarial value of the income stream retained by the settlor – the transfer of value for IHT purposes being the net amount, reflecting the perceived reduction in value of the settlor’s estate at the time of the gift.
Based on a monthly “withdrawal” of £416.67, if the withdrawal rate was 5% this would indicate an initial bond investment of £100,000, so the figure of £101,010 could be the actual sum the client invested in the bond. If so, it is likely the figure of £79,297 was for the transfer of value when the trust was created and is the figure that should be included on the IHT 403, which would fit with what the FA is advising.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals