What is the primary role of a settlor in a discretionary trust regarding IHT liability?

In the context of a discretionary trust, the primary role of the settlor is indeed to bear the tax liabilities associated with the trust, particularly in terms of Inheritance Tax (IHT). Upon establishing a discretionary trust, the settlor transfers assets into the trust while retaining some degree of control. It is important to note that for IHT purposes, any transfers made by the settlor to the trust will be considered a potentially exempt transfer.

If the settlor passes away within seven years of making the transfer, the assets may fall back into their estate for IHT calculations. This means that while the trust itself may have discretionary powers regarding the distribution of assets amongst beneficiaries, it is the settlor who could be aligned with tax obligations if they still possess certain interests in the trust.

When considering the other roles outlined in the options, it is clear that while the settlor might influence certain aspects of the trust, such as the investment strategy or potential beneficiaries, the key focus in relation to IHT liability lies with the settlor's responsibility for any associated tax implications. Thus, understanding the settlor’s role in the context of IHT is crucial for comprehending the mechanics of discretionary trusts.