Discounted Gift Trust

Trusts Discussion
1

I am a little bit unsure of how/where to include a Discounted Gift Trust on IHT400 and Schedules. I am dealing with estates of H and W who both died in 2020. in 2006 (ie 14 years prior to the deaths) they settled the sum of £90,000 which was provided jointly. An IHT Account is required for both estates.

The financial advisors considered at the time that £90,000 went into two funds:-

£50,000 went into one part which was called the Beneficiaries Fund for which husband and wife and one other person became the trustees of this discretionary trust. The Default Beneficiaries were stated to be the children of the couple. Following the deaths, this fund is now worth circa £80,000. The financial advisors stated that this was a PET (so I assume this has now fallen outside of the deceased’s estates).

The balance of £40,000 went into another fund called the Retained Interest. This was used to purchase the insurance policy to which husband and wife took a monthly income amounting to approximately £450. We are advised by the company who set this up that over the 13/14 years, husband and wife took a total income of £65,000 (from what started as a pot of £40,000).

I assume that the Beneficiaries Fund does not need to be reported because of the time which has passed since it was settled. However, I telephoned the IHT helpline and a representative stated that Retained interest element should be reported on the IHT410 (in particular in box 2).

I would be grateful for input of anyone who has had experience of reporting these products as to how they proceeded.

2

If this was a discounted gift trust marketed by a life assurance company, it would be handy to know the name of the life office and the scheme name in order to be more specific, but subject to that, in order to obtain the discount (i.e. effectively, an immediate loss to the estate of the donors at the point of making the gift into trust) the donors would usually have to retain the right to something – with life assurance based arrangements this would usually be the right to receive an income in some form for life.

To my mind, the reporting for the purposes of the estate account will depend upon the terms of the insurance policy/ies in question and how the terms of the trust holding that/those deal with the death benefit, surrender value etc.

If the only rights of the donors were to receive an income for life which ceases entirely upon their demise, then the scheme would have no residual value within the estate of the last survivor on death.

3

The settlor’s entitlement is to receive capital payments during lifetime but which then cease on death.The value of the settlor’s future capital payments is therefore nil at the date of death and so no amount is included in the deceased settlor’s estate for IHT.

I have read arguments in the literature to the contrary (ie at date of death the settlor’s retained fund does have a value) but believe HMRC accept a nil valuation.

Malcolm Finney

4

Thank you so much for your response.