Discounted Gift Trusts

This type of trust is designed to help to reduce Inheritance Tax liability, whilst allowing you to keep an income for as long as you live.

You give away a sum of money to a trust, and this amount will not normally form part of your estate for Inheritance Tax purposes provided you survive for seven years.

The money that you give away is invested by trustees. The trustees pay you a level of income that you select, out of this investment. The investment in the trust when you die belongs to the beneficiaries of the trust (possibly your children, grandchildren, or others if you wish).

An advantage of this type of trust is that it can secure an immediate reduction in the size of your personal estate for Inheritance Tax purposes. This differs from many other arrangements, where the entire sum generally stays in your estate for a full seven years from the date of the gift.

Of course, you should be careful not to select too high a level of income, as this could lead to depletion of the fund.

This type of trust can be arranged as a discretionary trust, a flexible trust, or an absolute trust, and each has its own implications and potential complications. It is vital to choose the right type of trust, and you should not consider this type of arrangement without taking professional advice.


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