It is important for people to be aware of the dangers of putting their property into asset protection trusts in the belief that this will avoid them having to pay for care fees or a potential Inheritance Tax saving. If specialist advice is not sought regarding this, it can create both financial and legal complications and the trust itself may not even be effective in shielding the property from care fees and Inheritance Tax due to deliberate deprivation and retaining a benefit from an asset rules as below.
Firstly, by transferring your property to your trustees to hold upon an asset protection trust could be considered a deprivation of assets if the local authority believe that this was done to deliberately avoid paying care fees. If they believe this was the intention, the local authority can still treat the property as belonging to that individual and take this into account for the financial assessment, regardless of when the trust itself was established. The Local Authority have far ranging powers regarding overturning any transfer.
Another important factor to consider is the financial implications of the trust to include possible entry charges, reoccurring charges every 10 years and exit charges.
In regards to Inheritance Tax, it is also important to be aware that the above could also be considered a chargeable lifetime transfer, which is where an individual makes a transfer of value, and if this is the case, it will still be considered for Inheritance Tax purposes. This could also be the case if you continue live in the property rent free as you are seen to have retained a benefit. Further consideration should also be centred around the Residence Nil Rate Band, which is an additional tax allowance some people qualify for, however by putting the property into an asset protection trust may cause people to lose out on this tax relief.
Another downfall of asset protection trusts would be the loss of control over the property due to the change in ownership to their nominated Trustees. This can lead to further issues arising if a Trustee were to lose capacity or from potential disputes between Trustees, all of which puts the settlor in a difficult position and would force the settlor in having to spend more time and money to resolve these issues.
Recent news reports have revealed that many people have been mis-sold asset protection trusts across the years and in return have been paying extortionate fees for a service that is disingenuous. People have been misled through not often being made aware of the implications and risks of asset protection trusts.
The dangers of the above has come to light to the public through various media platforms to include BBC Breakfast and BBC Radio 4 News to finally bring coverage over the risks, like those mentioned above. As a result, people should be encouraged to seek regulated advice as it is most often the case that the people who try to sell these types of trusts are not regulated or qualified to give the correct advice therefore meaning clients often make Ill-informed decisions and are stuck with a trust that they don’t understand. This particularly applies should you chose to seek advice from an unregulated provider and it is worth noting that all Solicitor Firms are regulated by the Law Society and the Solicitors Regulatory Authority so protections are in place to protect the consumer. Overall, asset protection trusts are often costly, complicated and unfit for its desired purpose and that’s why Paul Robinson Solicitors would always recommend that you seek specialist advice to discuss all the options available to you.
If you want to know more about trusts and alterative ways to deal with your estate planning, please get in contact with the team below or give us a call on 01702 338338.
