1 December 2023
Increasing numbers of people are looking for new ways to manage their estate so they have money left to give to their children.
Therefore, protecting family assets is one of the most important things you can do in later life.
One option is an asset protection trust. However, it is essential to be cautious in setting up a trust to avoid being accused of deliberate deprivation.
An asset protection estate is a tool for managing your estate to make sure your assets go where you want them to after you die.
An asset protection trust is set up during your lifetime, and assets in the trust are distributed quickly to the beneficiaries once you pass away. Asset protection trusts are a form of life interest trust but overlap with trust wills as the trust will be named in your will.
UK residents, especially those with a reasonably high net worth, can utilise asset preservation trusts to secure their estate planning efforts.
It is designed to protect and preserve the value of assets for future generations. Assets such as real estate, investments, and other property are placed in the trust to ensure they remain secure and out of reach from creditors or other claimants.
The trustees of the trust can be appointed by the settlor (the individual who creates the trust) or nominated by a third party, such as a financial advisor or solicitor.
The trustees are responsible for managing and protecting the assets according to any guidelines set out in the trust deed.
An asset preservation trust can provide peace of mind that expensive items will not be lost due to unforeseen events or circumstances.
A trust means that you split up the legal ownership of an asset up from the enjoyment of that asset. The trustees get the legal ownership, and the beneficiaries get the benefit. The idea is that by transferring your assets into this type of trust during your lifetime, they stop being part of your estate, and this form of ownership continues after your death.
Asset protection trusts are life interest trusts for the person setting them up. While you are alive, you must benefit from the lifetime trust, as per the local authority capital deprivation regulations.
Here is a video on how you can use an Asset Protection Trust to protect your assets.
Protecting family assets is essential to ensure your family benefit from your wealth.
Protecting family assets involves ensuring that your financial security is not compromised by unexpected costs or changes in circumstances.
This could include setting up asset protection trusts, creating savings plans and investing wisely.
It also includes ensuring that you have adequate insurance coverage for yourself and your family, which can help cover any losses incurred due to unforeseen events such as illness or death.
It also helps protect you against inheritance tax by ensuring that your assets are passed on to the right people in the right way.
By creating a plan and understanding how inheritance tax works, you can ensure that your family will benefit from the money you leave behind.
You should also consider setting up a will so that your wishes for the distribution of your estate are clear and legally binding.
Family asset protection is important because it helps secure your family’s future and financial stability.
It also gives them peace of mind knowing they can rely on their inheritance, even in times of uncertainty or sudden changes in circumstances.
There are multiple ways your estate can be eroded after your death, meaning that your assets are not distributed to your loved ones as you would want. These include:
You will need an adviser or asset protection solicitors to help set up a trust.
The cost of setting up lifetime trusts depends on the complexity and value of the assets you want to transfer into the trust. It also depends on the tax liability of the assets and the solicitors you choose. As a guide, lawyers will charge between £2500 and £5000 to establish the trust and you may have to pay conveyancing fees to move money in and out of the trust.
It is worth getting in contact with a solicitor’s practice to get more help and information and to get an assessment of whether this arrangement is right for your family.
Anyone with mental capacity can set up an asset protection trust. This sort of trust is useful for any person who wants to set up a more specific inheritance regime.
The most common thing people put in this trust is their property, or a share of their house if it is jointly owned. Any capital under £14,250 is not considered for means-testing, so any capital above this is worth putting in the trust.
It would be best if you were cautious about putting any assets that attract capital gains tax into the trust. Also, if you transfer assets over your Nil Rate Band in the trust, you will be charged lifetime inheritance tax on the trust property.
It is worth seeking asset protection legal advice on the tax implications of family trusts.
Or it would be best if you spoke to asset protection solicitors who can help you understand the impact.
If the assets are in a trust, they are separate from the remaining surviving spouse’s assets.
Therefore, when the local authority does its equation to calculate the amount of long term care fees payable, in theory, the assets in the trust will not be included.
Therefore, the surviving partner is likely to get more state benefits.
However, you cannot set up a trust to avoid paying the local authority care fees, which is called a ‘deliberate deprivation of assets‘.
If from the context, the local authority suspects that it was reasonably foreseeable that long term care would be required before the trust was set up, such as if your health or your partner’s health was already deteriorating, they have wide discretion of what to do with the trust.
Their powers include the ability to access to the trust assets and assessing their value.
As such, there is a risk the house may need to be sold.
There are numerous pros to setting up this type of trust arrangement:
While asset protection trusts seem like a perfect method of estate planning, it is important to be cautious, with Age UK describing these trusts as a ‘worthless piece of paper’. There are numerous problems with this type of scheme:
This is also called a settlor-interested lifetime discretionary trust. This is a trust fund you can add to throughout your life, and everything in the trust is deemed by law not to be owned by you but is owned by the trust. When you die, the contents of the trust pass to the beneficiaries. The trust value will not be used to pay probate costs or for residential care.
No. However, if the value is about the nil rate band, which at the moment is £325,000, there will be an immediate lifetime inheritance tax charge. This will be 20% on the sum of investments £325,000.
Also, you have to consider the income tax consequences of the payments you make from the trust during your lifetime.
We have set out below some of the advantages and disadvantages associated with asset protection trusts
1 – Asset protection trusts provide comprehensive legal protection for assets placed in them, protecting them from creditor claims or judgments issued against you or your business. This can be especially helpful when facing debt issues, as it ensures that key personal and business assets remain protected in the event of insolvency proceedings.
2 – Placing assets into an asset protection trust means they do not form part of your estate upon death, which reduces inheritance tax liabilities and can simplify the probate process. This is particularly beneficial if you are looking to protect family wealth, secure large property investments, or manage the estate of a deceased family member.
3 – Asset protection trusts also provide flexibility regarding how assets are managed and distributed. Beneficiaries can be added and removed at any time, and trustees have discretion over when and where assets should be allocated within the trust.
1 – Creating an asset protection trust can involve high legal and solicitor fees due to its complex nature. Additionally, you may find yourself paying ongoing management fees to keep it legally compliant. This can make them a costly option for those with limited financial resources.
2 – An asset protection trust may prevent you from accessing or using assets held within it. This means that if you need access to liquid funds in a financial emergency, they may not be accessible without the trustee’s approval.
3 – Asset protection trusts are not foolproof, and there are certain legal situations where assets placed in a trust may still be liable for claims from creditors. It is important to work with an experienced lawyer who can ensure all legal requirements are met and advise on any potential loopholes that could undermine the protection provided by the trust.
You can appoint any person, or group of people you trust, to manage your affairs.
This is likely a family member or loved one. It is important that you are also a trustee, so you get some control over the trust. You can also put in place solicitors as trustees, as they will vote with you during your lifetime, provide information on the law and sort out wills.
It is important you appoint two solicitors, so they cannot take individual control and also that these solicitors are regulated by the solicitor’s regulation authority.
Any person you want, often your children.
One drafting option is that if you have a spouse, and you have a joint tenancy of your home, you can ensure they have the right to continue to occupy the property for their lifetime, while leaving your share of the home to your children or any other person.
You can change your mind at any point and move assets into and out of the trust. You can change your will too. There is likely a conveyancing fee for moving assets, but other than this, you can do as you please.
Recent legislation has attempted to deal with providers misleading clients over the benefits of asset protection trusts. Where there have been unfair commercial practices, victims can get redress under consumer protection from unfair trading regulations.
This includes where a solicitor has been misleading and causes you to make a decision you otherwise would not have made.
You should contact a solicitor for help if you are worried you want to take action if you did not have the correct knowledge and information at the stage when you set up the trust.
There are other alternative types of arrangements you can make both for inheritance tax purposes and to safeguard your assets, all of which have pros and cons. It is worth getting a legal assessment to get a guide on what is the best course of action for your estate. These include:
Rob writes and edits the content produced by the rest of the team. He has a degree in History from Leeds University and has producing, reviewing and editing the site since 2016
An asset protection estate is a tool for managing your estate to make sure your assets go where you want them to after you die.
An asset protection trust is set up during your lifetime, and assets in the trust are distributed quickly to the beneficiaries once you pass away. Asset protection trusts are a form of life interest trust but overlap with trust wills as the trust will be named in your will.
UK residents, especially those with a reasonably high net worth, can utilise asset preservation trusts to secure their estate planning efforts.
It is designed to protect and preserve the value of assets for future generations. Assets such as real estate, investments, and other property are placed in the trust to ensure they remain secure and out of reach from creditors or other claimants.
The trustees of the trust can be appointed by the settlor (the individual who creates the trust) or nominated by a third party such as a financial advisor or solicitor.
The trustees are responsible for managing and protecting the assets according to any guidelines set out in the trust deed.
A trust means that you split up the legal ownership of an asset up from the enjoyment of that asset. The trustees get the legal ownership, and the beneficiaries get the benefit. The idea is that by transferring your assets into this type of trust during your lifetime, they stop being part of your estate, and this form of ownership continues after your death.
Protecting family assets is essential to ensure your family benefit from your wealth.
Protecting family assets involves ensuring that your financial security is not compromised by unexpected costs or changes in circumstances.
This could include setting up asset protection trusts, creating savings plans and investing wisely.
It also includes ensuring that you have adequate insurance coverage for yourself and your family, which can help cover any losses incurred due to unforeseen events such as illness or death.
