SETTLOR/DONOR S GUIDE

Transcription

1 legal & general discounted gift SCHEME SETTLOR/DONOR S GUIDE Inheritance tax planning. For settlor/donors with a potential UK inheritance tax (IHT) liability. This is an important document. Please keep it safe for future reference. Peace of mind We understand that when the time comes you would like to leave as much as possible to your loved ones. We can help you achieve peace of mind by potentially reducing the burden of inheritance tax through our Discounted Gift Scheme.

2 2 BEFORE YOU START PURPOSE OF THIS GUIDE The Legal & General Discounted Gift Scheme is made up of two parts a Discounted Gift Scheme Trust and a Legal & General Select Portfolio Bond, which we will refer to as the bond throughout this guide. This guide is an important document to refer to as it provides details of how the Discounted Gift Scheme works. For further details on how the bond works, please ask your adviser for the product literature for the Legal & General Select Portfolio Bond. TO HELP YOUR UNDERSTANDING We have done our best to explain everything as simply as possible, however, you are likely to come across some terms you are unfamiliar with. Where possible, we have explained these where they are used. Some of the more common terms have been explained in the glossary at the back of this guide. You may find it helpful to view the glossary now. For ease of reference, we have highlighted the glossary terms in yellow when we use them. Additional documents are highlighted in bold, and your adviser will provide these for you when needed. Throughout this guide we refer to we, our and us, which mean Legal & General. Discounted Gift Schemes can be complicated, especially the taxation applied to them. We have included the information you will need to decide whether our Scheme is right for you. If you would like more detailed information or are unsure about anything, we or your adviser will be happy to help. You can also find out more about IHT and trusts by visiting: gov.uk/guidance/trusts-and-inheritance-tax THE SETTLOR/DONOR There are two types of trust available in our Discounted Gift Scheme a discretionary trust and an absolute trust. The person making a cash gift into a discretionary trust is known as the settlor. The person making a cash gift into an absolute trust is known as the donor. Throughout this document we refer to the person making the cash gift into trust as the settlor/donor unless specifically referring to an absolute or discretionary trust, where we will use the appropriate term. Finding out more At some points we have included clear signposts (using the symbol shown alongside), which direct you to more detailed information elsewhere. Keep an eye out for these signposts. If you would like to see any of the other documents before investing, please ask your adviser. The taxation and trust information in this guide is a summary based on our understanding of current tax law relating to trusts and life assurance policies covered by HM Revenue & Customs (HMRC) practice. Tax law and HMRC practice may change in the future. The value of any tax advantages will depend on your individual circumstances, which may be subject to change.

3 3 LEGAL & GENERAL S DISCOUNTED GIFT SCHEME AT A GLANCE A right to receive fixed regular withdrawals from a minimum investment of 50,000 for the rest of your life or until there is no money left in the trust fund. Potential to immediately reduce the value of your estate for IHT. Potential for growth on the cash gift over the medium to long term. Any growth is also outside your estate for IHT purposes. An efficient way to pass on some of your wealth to your chosen beneficiaries. The Scheme is available for settlor/donors aged from 18 to 89. Our Discounted Gift Scheme is made up of two parts: THE DISCOUNTED GIFT scheme TRUST This sets out: the terms of the cash gift made to your chosen beneficiaries and how it should be managed by the trustees, and your right to receive fixed regular withdrawals from the trust fund. THE LEGAL & GENERAL select PORTFOLIO BOND The Select Portfolio Bond is a single premium life assurance contract used for medium to long-term investment purposes. It is suitable for use with a trust and has the ability to pay the fixed regular withdrawals needed by the trust. As an investment, it also has the potential to grow, but remember that the value of the bond will be reduced by the regular withdrawals you will be receiving. In addition, the value of your investment in the bond can fall as well as rise, and you and/or your chosen beneficiaries may get back less than you put in. Your adviser will be able to provide you with more information on our Select Portfolio Bond. You should read the Select Portfolio Bond Key Features before setting up the Scheme.

4 4 HOW DOES THE DISCOUNTED GIFT SCHEME WORK? First you decide with your adviser: what type of trust is right for you, an absolute or discretionary trust, who you would like to be able to benefit from the trust fund, who you would like to be the trustees of the trust, the amount of the cash gift you would like to make, the level of regular withdrawals you want to take. Secondly, you make a cash gift into the Discounted Gift Scheme using an absolute or discretionary trust. Both types of trust create two separate sets of rights: RETAINED RIGHTS The discount BENEFICIARIES RIGHTS The discounted value of the investment Minimum investment into our Discounted Gift Scheme is 50,000. See the Choosing the type of trust that s right for you section on page 6 for more information on the two types of Discounted Gift Scheme Trust available. Our Discounted Gift Scheme can be set up either by a single person, or jointly by a married couple or registered civil partners. This is your right to receive fixed regular withdrawals from the trust fund. The regular withdrawals will last for the rest of your life or until there is no money left in the trust fund, whichever comes first. We will put a value on the retained rights by assessing the information you give us in the Settlor/Donor Questionnaire. It is the value of these retained rights that make up the discount. These are the beneficiaries rights to the trust fund. This is called a discounted potentially exempt transfer (PET) when you use an absolute trust, or a discounted chargeable lifetime transfer (CLT) when you use a discretionary trust. See the IHT on the Discounted Gift Scheme section on page 7 for more information on the types of trust available and the difference between potentially exempt and chargeable lifetime transfers. The discount is not liable to IHT. The discounted value of the investment is the amount used to work out if any IHT should be paid. The trustees then invest the cash gift into the bond. Both the trust and the bond are managed by the trustees until the trust ends. The trustees ensure that: the regular withdrawals are paid to you for the rest of your life or until there is no money left in the trust fund, and none of the trust fund is passed to your chosen beneficiaries during your lifetime. Finally, on your death, or the death of the last joint settlor/donor: the regular withdrawals stop, the trustees then decide how to use the remaining trust fund for your chosen beneficiaries.

5 5 HOW MUCH IS THE DISCOUNT? When you start the Scheme, the discount is the value we calculate for the regular withdrawals you will receive. We use the following to work out the discount: your age, your state of health. To assess your state of health, we will use the information you give us in the Settlor/Donor Questionnaire together with a General Practitioner s Report (GPR), the amount of the cash gift, how much and how often you would like to receive regular withdrawals, an assumed rate of growth that meets HMRC guidelines. We use this to work out the capital value of the regular withdrawals. See the Setting up your Discounted Gift Scheme section on page 12 for more information on the General Practitioner s Report (GPR). We will pay for the report. Generally, providing you are in good health, the younger you are and the higher the level of regular withdrawals you choose to take, the higher the discount will be. When we started our Discounted Gift Scheme, HMRC confirmed that they were satisfied with the basis we use to calculate the discounted value of the investment. Since then, HMRC has published guidelines for discounted gift schemes in general and our Scheme is consistent with the published approach. However, HMRC reserves the right to review cases individually. It may be necessary to calculate the discount again at a later date if you decide to use a discretionary trust and a periodic IHT charge becomes due. We ll use the same method as described above to calculate the discount. You can find more information on IHT charges on page 7. FOR EXAMPLE: John is aged 65, is healthy for his age and enjoying his retirement. Before he retired, John ran a successful business that he has recently sold at a healthy profit. He has enough income from other sources that covers his normal living expenses. John has a son and daughter, both are married with two children each. He would like to pass on some of the wealth he has accumulated to his grandchildren but does not want to give up access to his capital altogether. After speaking to his adviser, John decides that the Legal & General Discounted Gift Scheme is right for him and decides to make a cash gift of 100,000 into the Discounted Gift Scheme. John decides to take regular withdrawals from his bond each year at 5% of the value of the cash gift (5% x 100,000), giving him 5,000 each year to spend as he chooses. After assessing John as explained above, we are able to provide him with a discount of 63,164. This means that the discounted value of the investment will be 100,000 minus 63,164 = 36,836. Assuming John goes ahead with the Scheme, the discounted value of the investment of 36,836 is the amount that will be used to work out whether any IHT would be paid. Your adviser can provide you with our Examples of the Discounted Value of the Investment document, which can give you an indication of the discount that could be applied.

6 6 CHOOSING THE TYPE OF TRUST THAT S RIGHT FOR YOU There are two types of trust available under the Discounted Gift Scheme absolute trust and discretionary trust. When choosing between the two types of trust, you need to take into account: How much control you want the trustees to have over the trust and how your chosen beneficiaries will benefit from it. Whether you want to have some flexibility to change the beneficiaries after you have set up the trust. How the different types of trust are treated for IHT purposes. CONTROL AND FLEXIBILITY Absolute Trust This is a very specific type of trust that you should only choose if you know exactly who you want to benefit from the trust. It is important to remember you will not be able to change these beneficiaries in the future. You specifically name the beneficiaries when the trust is created and, if there is more than one, a percentage share for each. You decide who to name as beneficiaries (jointly for joint donors), these would normally be your children, grandchildren or great grandchildren. Once named, these beneficiaries and their percentage shares cannot be changed and no further beneficiaries can be added to the trust once it has been created. You cannot name yourself as a beneficiary of the Scheme. During your lifetime, you have the right to receive regular withdrawals from the trust fund. The trustees cannot make any payments to a beneficiary or transfer the bond to them during your lifetime. After the donor s death, any adult beneficiary can demand that the trustees transfer their portion of the remaining trust fund to them. Discretionary Trust A discretionary trust is a more flexible type of trust. The beneficiaries are made up of classes of potential beneficiaries. You can make some changes to the trust once it has been set up. The trustees decide who is to benefit and in what share, from the beneficiaries listed in the trust. You can give the trustees a Letter of Wishes outlining your objectives but it is the trustees who decide who will benefit from the trust and in what proportion. The beneficiaries automatically include your spouse or registered civil partner (unless you specifically exclude them), children, grandchildren, great grandchildren, brothers and sisters, nieces and nephews, and any of their spouses or registered civil partners, and any person that you specifically include when the trust is created. You can exclude specific beneficiaries from the trust by completing a Deed to Exclude a Beneficiary. You can add additional beneficiaries to the trust at a later date by completing a Deed to Appoint an Additional Beneficiary or Class of Beneficiaries to a Discretionary Class. During your lifetime, you have the right to receive regular withdrawals from the trust fund. The trustees cannot make any payments to a beneficiary, or transfer the bond to them during your lifetime.

7 7 After the settlor s death, the trustees can decide how to pass on the remaining trust fund to one or more beneficiaries. If both spouses or registered civil partners are planning to set up separate Schemes, it is important that neither can benefit from the other s discretionary trust. Each of you should exclude your spouse or registered civil partner from being able to benefit during your lifetime. You do this when creating your individual trust by signing the relevant box in the Discounted Gift Scheme Discretionary Trust. IHT ON THE DISCOUNTED GIFT SCHEME Absolute Trust Our absolute trust is treated as a potentially exempt transfer for IHT purposes. If you live for seven years after making the cash gift, there will be no IHT to pay in respect of the gift when you die. If you were to die within seven years of making the cash gift, it becomes a chargeable transfer for IHT purposes. There could be IHT due if the discounted value of the investment, when added to all chargeable transfers made in the seven years before you set up the Scheme, is more than the nil rate band at the time of your death. Chargeable transfers are all gifts into trust that an IHT charge could be applied to. Discretionary Trust T h e discounted value of the investment is treated as a chargeable lifetime transfer for IHT purposes. There are a number of situations when IHT may be due: Creation charge when you set up the trust. Periodic charge every 10 years while the trust is in operation. Exit charge when money is paid to beneficiaries. Additionally, if you were to die within seven years of setting up the Scheme, there could be IHT due if the discounted value of the investment, when added to all chargeable transfers in the seven years before you set up the Scheme, is more than the nil rate band at the time of your death. When you start the Scheme, if the discounted value of the investment added to the total of all chargeable transfers made in the previous seven years is more than the nil rate band, IHT may be due. This is known as the creation charge. If IHT is due you must declare it to HMRC. You can do this by completing forms IHT 100 and IHT 100a, both forms are available from HMRC. Your adviser will be able to provide you with more information on the potential tax charges applicable to both absolute and discretionary trusts. WHO PAYS ANY INHERITANCE TAX DUE? Absolute Trust The beneficiary is responsible for making payments for any IHT liability. Trustees can cash in some of the trust fund to make these payments if they become due. Discretionary Trust You will need to agree with the trustees who will be responsible for making sure any IHT is paid. The trustees can cash in part of the bond to pay any of the following charges if they become due: periodic charge, Our Discounted Gift Scheme and the discounted value of the investment that we provide assumes you will pay any immediate creation charge as a result of setting up the trust. exit charge, and any potential charge following your death.

8 8 IMPORTANT INFORMATION ON THE SCHEME Our Discounted Gift Scheme is made up of two parts the Discounted Gift Scheme Trust and the Legal & General Select Portfolio Bond. The following important information relates specifically to the Discounted Gift Scheme Trust and is in addition to that shown in the Select Portfolio Bond Key Features. You should read both documents before making an investment. Your adviser will be able to provide you with the items that make up the Key Features of our Select Portfolio Bond. AIMS OF THE SCHEME To provide you with the retained rights as set out in the trust. To reduce your estate s IHT liability if we are able to provide you with a discount. To enable the trustees to pass the remaining trust fund to the chosen beneficiaries following your death, either immediately or at some time in the future. YOUR COMMITMENTS To create the trust and make a cash gift of at least 50,000 to the trustees. To decide on a level and frequency of regular payments that make up your retained rights and be aware that these cannot be changed during your lifetime. To instruct the trustees to invest the cash gift into the bond. To be aware that you have no access to the trust fund, except for the retained rights. THE TRUSTEES COMMITMENTS To make sure the bond is managed according to the terms of the trust. To make sure the trust makes any tax payments required to HMRC. If an absolute trust is chosen, to make sure the remaining trust fund is passed on to any adult beneficiaries after your death. RISKS Our approach to assessing your state of health and working out the amount of the discount for IHT purposes meets published HMRC guidelines. However, they do not approve individual discount amounts so we cannot guarantee them. For example, if the discount amount we provide to you is more than the amount allowed by HMRC, there may be an IHT liability on the difference. CAN THE TRUSTEES CHANGE THEIR MIND? If the trustees do not cancel the bond within 30 days of setting it up, they cannot cash in the bond during your lifetime. FACILITATED ADVISER CHARGES You ll agree with your adviser s firm how to pay them for their services before you invest in the bond. The bond offers a way of making these payments called facilitated adviser charges. The amount of these facilitated adviser charges will not affect the discounted value of the investment. Your adviser will be able to provide you with our Facilitated Adviser Charges Guide, which gives more details on how we can facilitate payment of your adviser charges. Who pays the adviser s firm and how it s paid can have significant tax implications for the settlor/donor and the trust. Your adviser will be able to provide you with more information on this.

9 9 HOW THE SCHEME CHANGES THE TERMS OF YOUR BOND The Key Features of the bond provide you with information about the bond s features and options. Not all of these options will be available to you as the terms of the Discounted Gift Scheme Trust place some restrictions on these options. You should read the information below before making any changes to the bond. Some options may not be available or might be restricted when investing as part of a Discounted Gift Scheme. Your adviser will be able to provide you with the Select Portfolio Bond Key Features. You should refer to the Key Features for more information on how the bond works. ADDING TO the BOND It is not possible to make additional investments into the bond under our Discounted Gift Scheme. If you would like to make additional investments, a new Discounted Gift Scheme can be set up. CASHING IN PART OF THE BOND Options available during the settlor/donor s lifetime Part of the bond can only be cashed in by the trustees to cover one of the following: an IHT or income tax charge resulting from the operation of the trust, or a professional trustee s fees, or a trustee s reasonable expenses incurred in performing their duties, or an investment or other professional adviser s fee. After cashing in whole policies from the bond, we will maintain regular withdrawals at the same amount. To do this we will increase the percentage rate of regular withdrawals from the remaining policies. Increasing the percentage rate of regular withdrawals may trigger an income tax charge from the bond. Please see the Key Features for details. We will need confirmation of any tax, expense or professional fee due before we can cash in part of the bond. The bond is made up of a series of identical insurance contracts called policies. Options available after the settlor/donor s death After the settlor/donor s death, the trustees can cash in part of the bond at any time. CASHING IN ALL OF THE BOND Options available during the settlor/donor s lifetime This cannot be done during the life of the settlor/donor because of their right to receive regular withdrawals. Options available after the settlor/donor s death All of the bond can be cashed in but this could have a significant impact on the amount of income tax that may become payable.

10 10 USING THE BOND TO PROVIDE AN INCOME Options available during the settlor/donor s lifetime The amount and frequency of the regular withdrawals cannot be stopped or changed in any way during the settlor/donor s lifetime. Options available after the settlor/donor s death Regular withdrawals to the settlor/donor s bank account will stop. The trustees can ask for new regular withdrawals to the beneficiaries to start all of the options shown in the bond s Key Features will then be available. IF SOMEBODY NAMED ON THE TRUST DIES The trustees should let us know as soon as possible if any of the following people named on the trust or bond were to die: settlor/donor beneficiary (of an absolute trust only) trustee life assured. If the settlor/donor dies Single settlor/donor We will stop regular withdrawal payments and the restrictions placed on the trustees preventing them from cashing in the bond no longer apply. Joint settlor/donors When the first of the joint settlor/donors dies, the regular withdrawals continue at the same level and are paid to the remaining settlor/donor. When the remaining settlor/donor dies, we will stop regular withdrawal payments and the restrictions placed on the trustees preventing them from cashing in the bond no longer apply. The trustees and beneficiaries should speak to their adviser(s) following the settlor/donor s death to decide whether the bond should be cashed in. The proceeds would still continue to be held in trust until distributed by the trustees. If a beneficiary dies Absolute Trust If a beneficiary under an absolute trust dies, the value of their share of the trust fund (less the value of the donor s retained rights during the donor s lifetime) is included in the deceased beneficiary s estate for IHT. Discretionary Trust Apart from reducing the number of potential beneficiaries, the death of a beneficiary has no other effect.

11 11 If a trustee dies A replacement may need to be appointed to make sure that the minimum number of individual trustees is maintained. The settlor/donor can appoint additional trustees. Following the death of the settlor/donor, the remaining trustees can appoint additional trustees. If a life assured dies If a life assured dies leaving at least one other life assured remaining, the bond continues. If the last surviving life assured dies after the death of the settlor/donor, then the bond ends and the death benefit is paid to the trustees. If the last surviving life assured dies during the settlor/donor s lifetime, the trustees must invest the death benefit payable to them into a new bond to make sure the settlor/donor s retained rights to receive the regular withdrawals continue. Your adviser will be able to provide you with the documents needed to add additional trustees. The bond will continue until the earlier of: the death of the last life assured, the value of the bond is reduced to zero or the bond is fully cashed in after the death of the last settlor/donor. WHO PAYS ANY INCOME TAX? Absolute Trust Generally, any chargeable gains are added to the beneficiaries income to work out if there is any income tax to pay. Where you or the beneficiaries pay an income tax charge as a result of operating the trust, you can claim a refund of the tax paid from the trustees. The trustees can cash in part of the trust fund to make these refund payments. Discretionary Trust During your lifetime and in the tax year of your death (providing you are UK resident in both cases), any chargeable gains are added to your income to work out if there is any income tax to pay. There are some exceptions to this rule. Your adviser will be able to provide you with further information if this is likely to affect you or your beneficiaries. See the Key Features for more information on chargeable gains. Where the Scheme has joint settlors, the cash gift is made on a 50:50 basis and so any individual income tax calculation is based on half of the chargeable gain. After the death of the last settlor, the trustees will be liable for any income tax charge at the rate applicable to trusts, less a credit for basic rate tax. For a joint Scheme, any chargeable gains in a tax year following that in which the first settlor died, will be split 50:50 with one half being assessed on the trustees. The other half is assessed on the surviving settlor. Where you pay a tax charge as a result of operating the trust, you can claim a refund of the tax paid from the trustees. The trustees can cash in part of the trust fund to make these refund payments. Any income tax liability arising on the trustees as a result of operating the trust can be paid by cashing in part of the trust fund. You should refer to the Key Features for information on potential charges and tax liabilities.

12 12 SETTING UP YOUR DISCOUNTED GIFT SCHEME STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 COMPLETING THE SETTLOR/DONOR QUESTIONNAIRE RECEIVING A DISCOUNTED GIFT VALUATION COMPLETING THE DISCOUNTED GIFT TRUST APPLYING FOR THE BOND SETTING UP THE BOND STEP 1 COMPLETING THE SETTLOR/DONOR QUESTIONNAIRE The first step is to complete the Settlor/Donor Questionnaire: This questionnaire includes a short list of lifestyle and health questions that you need to complete. We also need you to sign a declaration of consent so that we can contact your doctor to request a General Practitioner s Report (GPR). This is included in the questionnaire. The GPR gives us further information we will need to make an assessment of your health. We will use this, together with the amount of the cash gift, your age, and the amount of regular withdrawals you require, to work out the discount and provide you with a Discounted Gift Valuation. At this stage, only the Settlor/Donor Questionnaire should be sent to us. STEP 2 RECEIVING A DISCOUNTED GIFT VALUATION When we receive the Settlor/Donor Questionnaire, we will write to your doctor for a GPR (for joint settlor/donors, we will ask for a GPR for both of you). We will pay for the GPR. When we receive the GPR from your doctor, our team of specialist medical underwriters will make an assessment of your health in order to work out any discount. If we need more information to make an assessment, we may ask you to complete a further questionnaire or to attend a medical. If we are able to provide a discount value and you are accepted for the Scheme, we will send your adviser a Discounted Gift Valuation. The Discounted Gift Valuation includes: a written valuation of the discount and the discounted value of the investment, including a breakdown of the amounts for each settlor/donor for a joint Discounted Gift Scheme, and a list of the items required for you to apply for the Discounted Gift Scheme. If we are unable to provide a Discounted Gift Valuation, we will write to you with the reasons why.

13 13 STEP 3 COMPLETING THE DISCOUNTED GIFT TRUST If you accept our discount value, you will need to complete the appropriate Discounted Gift Scheme Trust deed. Your adviser can provide you with one of our Completion Guides to help you fill out the Discounted Gift Scheme Trust deed. Setting up the trust Any person can create a trust as long as they are aged 18 or over and have full mental capacity. Our Discounted Gift Scheme Trusts can be set up either by a single person, or jointly by a married couple or registered civil partners. The settlor/donor or both settlor/donors and the majority of the trustees must be UK resident. Please note that as US Persons cannot apply for a Select Portfolio Bond, they cannot be named as trustees. The beneficiaries As the settlor/donor, you decide who will be included as a beneficiary of the trust. The trustees The trustees role is to manage the trust fund to meet the terms of the trust. Any person can be appointed as a trustee provided that they are aged 18 or over and have full mental capacity. The majority of the trustees must be UK residents and must not be US Persons. Where there is to be a joint gift into the Discounted Gift Scheme, the cash gift must be provided in equal amounts from each settlor/donor. For joint Schemes, neither you nor your spouse or registered civil partner can be a beneficiary or benefit in any way from the trust, except for the retained rights chosen when the trust is created. You are automatically appointed as one of the trustees when the trust is created, although you can decline this appointment by signing a box in the relevant Discounted Gift Scheme Trust deed. There is no restriction on appointing a trustee who is also a beneficiary under the trust. During your lifetime you can appoint additional trustees provided once added, there are no more than four. You can do this by completing a Deed of Appointment of Additional Trustees. Following the death of the last settlor/donor, the remaining trustees can appoint additional trustees by completing a Deed of Appointment of Additional Trustees. Single settlor/donor Assuming you decide to be a trustee, you will need at least one additional trustee as a minimum of two is needed. Your spouse or registered civil partner can be the additional trustee. Joint settlor/donors Assuming you both decide to act as trustees, you will need at least one additional trustee as a minimum of three are needed. It may be beneficial for one of the trustees to be a professional adviser (such as a solicitor or accountant or a trust company). Your adviser can provide you with details.

14 14 STEP 4 APPLYING FOR THE BOND Once you have completed the Discounted Gift Scheme Trust deed, the trustees should then complete the Trustees Application Form. General Please make sure that the regular withdrawals section of the Trustees Application Form matches the retained rights shown in the Discounted Gift Scheme Trust deed. The Initial Amount on the Trust deed should match the amount to be invested in the bond. The minimum investment into the bond using the Discounted Gift Scheme is 50,000. The applicants will be the trustees. Lives assured At least two (and no more than six) lives assured must be chosen. At least one of the lives assured must be younger than you and likely to outlive you. Where there are joint settlor/donors, the youngest life assured must be younger than the youngest settlor/donor. The youngest life assured should also be in good health so that the bond is more likely to continue after your death. The beneficiaries of the trust can be named as the lives assured. The settlor/donor and their spouse or registered civil partner must not be named as the lives assured. STEP 5 SETTING UP THE BOND Your adviser will send us: the completed Trustees Application Form for the bond, the completed Discounted Gift Scheme Trust deed, the completed Trust/Entity Self-Certification Form, two items from our Confirming your identity Form for each settlor/donor and trustee, and a cheque for the trustees investment into your Legal & General Select Portfolio Bond. This should match the Initial Amount recorded on the Trust deed plus any initial facilitated adviser charge. Payment of the cash gift by the settlor/donor You must provide the money for the cash gift. If you are applying as a sole settlor/donor, you must be the only person to provide the money. It must not come from a joint account. If you are applying as joint settlor/donors, the money must be provided in equal shares either from your joint account or you could each provide half from accounts in each of your own names. Alternatively, the trustees could set up a trustee bank account and provide the money for the cash gift from there. What happens next? Once we have received the fully completed Trustees Application Form and Discounted Gift Scheme Trust deed along with valid payment for the investment, the bond will be set up. We will send the trustees the policy documents that detail the terms and conditions of the bond. A Discounted Gift Valuation Certificate will be included with the policy documents, which shows the discounted value of the investment.

15 15 GLOSSARY. An explanation of some common terms used in this guide. Beneficiary or beneficiaries Bond Cash gift This is the person, persons or class of persons (for example, grandchildren) who are able to benefit from the trust fund under the Discounted Gift Scheme Trust. The Select Portfolio Bond offered by Legal & General. A single premium life assurance contract made up of a series of identical policies, each with their own unique number. The cash amount given by the settlor/donor(s) to the trustees that is invested in the bond. It is described in the Discounted Gift Scheme Trust deed as the Initial Amount. Discount The capital value of the retained rights, as described on page 4. Discounted value of the investment Donor HMRC Inheritance tax (IHT) Life or lives assured Nil rate band Regular withdrawal(s) Retained rights Scheme Settlor Trust Trustees Trust fund The discounted or reduced value of the cash gift for IHT purposes. This will be the value of the cash sum given to the trustees less the discount. The person(s) making the gift into the absolute trust. HM Revenue & Customs, the UK tax authority. A tax that can be charged on lifetime gifts and on death. The life/lives assured are the persons on whose life/lives the bond depends. The nil rate band is the amount you can gift to certain trusts during your lifetime or leave on death without incurring any inheritance tax (assuming no significant gifts have been made within the previous seven years). The current nil rate band threshold is 325,000 which will stay the same until the end of the 2020/2021 tax year. From April 2017, you may also be entitled to an additional threshold called the residence nil rate band. This would only be available to you if you leave your home, or a share of it, to your children or grandchildren. However, if you downsized, sold or gave away your home after 7 July 2015, you may also qualify. You can find more information about the residence nil rate band, and whether you qualify by searching for it on: gov.uk The fixed amount of payments at regular intervals made to the settlor/donor during their lifetime. After the death of the settlor/donor, regular withdrawals can be made to one or more beneficiaries to provide them with an income. Your right to receive fixed regular withdrawal payments for life from the bond taken out by the trustees or until there is no money left in the bond, whichever comes first. The Discounted Gift Scheme. The person(s) making the gift into the discretionary trust. An obligation binding on the person who holds the legal title (the trustee) to deal with the trust fund for the benefit of the beneficiaries. The trust is normally set out in writing and contained in a document called the trust deed. The legal owners of the bond. Their role is to manage the trust fund to meet the terms of the trust deed. The trust fund means the cash gift when the Scheme is started. After the Scheme has started the trust fund is the fund value of the bond.

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