I am dealing with an estate where the deceased set up 3 DGT’s one in 2006, one in 2009 and one in 2011. The companies have referred to the retained interest as PET’s, however the policy documents are discretionary, therefore should they correctly be classed as CLT’s?
The deceased died in February 2021 and had made a number of gifts in the preceding 7 years, so am I right in thinking that backward shadow comes into play and that the available nil rate band for the PETs will be £325,000 less the sum of the retained interests of the 2009 and 2011 DGTs?
The basis of Discounted Gift Trusts is a Carve Out, Sally. So, with each of the three DGTs the Settlor carved out for himself the right to certain future withdrawals. The discount is then calculated by reference to age and health to actuarily value this retained benefit. HMRC continues to accept this on the basis that, if not expended, the stream of withdrawals will increase the value of the Settlor’s taxable estate during his lifetime.
The balance of the premia would then have been subject to the Discretionary Trust and, consequently, CLTs. The Providers are correct that the retained benefit is not subject to the Trust; this is the whole basis of a Carve Out - it’s carved out before other benefits are then written under Trust.
From your comment “policy documents”, this sounds like a life assurance based arrangement. Do you know the name of the life office and the name of the scheme?
If the trusts are indeed discretionary, then it sounds as though the “gifts” would have been CLTs, with the discounts described by Clive.
Take care with the 2006 one (although that may not be relevant anymore): some life insurance trusts from that era can look like discretionary trusts, but are in fact “defeasible interests” which could qualify as interests in possession; if it is an IIP from before 22 March 2006, then it would have qualified as a PET and the trust would be a “qualifying” IIP, not subject to the relevant property regime.