This article was last updated on 1 September 2020.
An increasing number of people are starting to consider the possibility of a need for care in the future, and the financial impact care home fees may have on them. As part of that thinking, they are also looking at putting property in trust.
Products like a property protective trust enable you to save a share of the property to pass on to loved ones. They are also known as ‘Property Trust Wills’ or Home Protection Trusts.
In this article we’ll cover:
– What are Property Protective Trusts?
– Who are these trusts best suited to?
– How do protective home trusts work?
– How much do trusts cost to set up?
– How to set up property trusts
– The disadvantages of these trusts
Before we start, you can watch a short video on property protection trusts.
You can see a version of this video on Youtube.
These are a type of legal structure that can be included as part of your will. It is important to remember that ‘property protection trusts’ is a marketing term, so different solicitors use the term differently. If you are considering setting one up, you should get more information from the solicitors about what their trusts do.
A lot of people have their money tied up in their house. Setting up this type of arrangement in your will is designed to protect your family home from being included in assessments that are carried out to determine how much you should contribute to long-term care fees.
However, it can not be used solely for the aim of avoiding care home fees.
A Trust covers a share of a jointly-owned house to ensure that the surviving spouse or partner can continue to benefit from their deceased partner’s share in their home even when they are gone.
Should they have to go into long-term care facilities, their share of the property may be protected – and can be passed on to family members upon their death. It is also a useful tool for anyone looking at their estate planning and in particular ways to avoid paying inheritance tax.
This type of will is best suited to couples that are married or in a civil partnership who are concerned about the possibility of a long-term care requirement in the future.
They are well suited to you if:
Normally when you set out your wishes and make a will, your estate and the value of your assets will be passed directly on to your beneficiaries, likely your surviving spouse, then after your death to your children. A care requirement and other circumstances can sometimes complicate or affect this process.
For this reason, trusts and products like them can hold assets on behalf of the beneficiaries to guard against the effect of IHT and care costs reducing the value of your estate.
The best way to explain how trusts works is to use an example.
Let’s say Mr and Mrs Bloggs jointly own their home. They want to ensure that their respective shares will be passed to their children when they pass away.
They also would like to have the peace of mind of knowing that if the surviving spouse requires care, at least half the home can be passed on to their family members.
If Mr Bloggs dies before his wife his half will go into trust – with the remainder left to his wife. She then has the common right to occupy the property or move house if she wishes.
If she requires long-term care at some point her husband’s share of the house remains in trust and cannot be taken into account during assessments conducted to determine the amount she will need pay towards her care.
In short, 50% of the value of the home cannot be taken and used to pay for care fees – and the property cannot be sold to pay for care fees.
These trusts covers every eventuality. Even if Mr and Mrs Blogg’s children divorce, predecease them or declare bankruptcy, they still retain occupancy and their share in the property is fully protected. Upon Mrs Bloggs’ death, the half share of the property is transferred to her children free from Capital Gains Tax.
A protection property trust or a protective property trust, as it is also known, is a type of legal structure that can be included as part of your will.
A lot of people have their money tied up in their house. A property protection will is designed to protect your home from being included in assessments that are carried out to determine how much you should contribute to long-term care fees.
However, it can not be used solely for the aim of avoiding care home fees.
A Property Trust covers a share of a jointly-owned house to ensure that surviving spouses or partners can continue to benefit from their deceased partner’s share in their home even when they are gone.
Should they have to go into long-term care facilities, their share of the property may be protected – and can be passed on to family members upon their death. It is also a useful tool for anyone looking at their estate planning and in particular ways to avoid paying inheritance tax.
This type of will is best suited to couples that are married or in a civil partnership who are concerned about the possibility of a long-term care requirement in the future.
They are well suited to you if:
– You would like to protect your estate and home against the cost of possible future care fees
– You want to ensure that your children receive at least half of the value of your house upon your death
– You’d like to ensure that your partner or spouse can continue to live in and benefit from your share of the property upon your death
The amount a trust will cost will vary depending on the complexity of your affairs.
Generally, a Property Trust Will costs between £350 and £500 plus VAT.
It will cost more for couples registering together than it does for individuals. Usually, this is a fixed fee – a one-off payment for the setup and registration of the plan.
Together a couple makes a will leaving their share of their property within a trust. The trust is set up as part of the will. You will then both become trustees. This type of will can be set up online via the trusted provider, or in person.
It is a good idea to speak to a solicitor and/or specialist later life financial advisor when setting up this kind of trust.
They can be complex to arrange – especially if your situation is complicated.
This will naturally affect the cost, but the additional amount required for professional assistance is worth paying if you can afford it.
We are able to help you with this and you can find a phone number to call below or you can book an appointment with a Trust specialist who will help you set it up.
There aren’t any directly comparable products on the market – but there are different types of private property trust you could consider depending on your circumstances.
For example, if you have a significant amount of investments and assets, including property, a Flexible Life Interest Trust Will may be more appropriate for you. Alternatively, you could also look at using a Family Protection Trust.
A Discretionary Trust Will is a specialist product designed to protect property assets and other investments for vulnerable or mentally incapacitated individuals. You can find further details of other types of products available to help you protect your assets in the future here on the UK Care Guide website.
Another type of trust to look at is a life interest trust. This allows you to allocate a beneficiary who then has the legal right to receive income from or use a property named in the trust.
If you’d like further advice on trusts, charities such as Age UK and Citizen’s Advice Bureau can offer some limited guidance, but you would always be advised to speak to a Trust specialist.
Whilst there are many advantages, you do need to be mindful of the disadvantages of using a Trust. The property protection trust disadvantages can include the cost, unexpected tax consequences, and the possibility of the trust not working as you intended.
Therefore, we would recommend that you speak to a Trust specialist who can better understand your circumstances and then outline what the disadvantages may be for you.
There a range of different trusts that you can use, and they are all worth exploring so that you can identify which one is likely to be the best one for your circumstances. These include:
A family protection trust a legal option where you have full access to the assets in the trust while you are alive, but you get to choose who will inherit from the trust fund.
You can read more about these below.
A home protection trust is a type of trust that protects your rights to reside in your family home. Having a trust makes sure that the home passes on to your beneficiaries, which are often your children.
You can read more about these below.
An inheritance tax planning trust to help you manage what will happen to your estate after you pass away.
Not only can a trust help reduce the inheritance tax you and your beneficiaries will pay, but they are also a useful tool for safeguarding your assets and give you flexibility in how you manage your finances. However, it is worth getting advice on setting up a trust.
These are 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.
You can read more about these below.
We work with with Quadrant Estate Planning for them to bring you their market leading later life planning support.
They offer a free consultation to discuss your circumstances and see what options you have:
If you would like some help, please leave your details below and someone will be in touch.
This section explains what you need to know about Family Protection Trusts.
If, as part of your estate planning, you are considering how to ring-fence your assets for the family, one option is setting up a family protection trust. However, it is important to take care to ensure that the protection trust is legitimate.
A family protection trust is technically called a settlor interested lifetime discretionary trust.
It is a legal option where you have full access to the assets in the trust while you are alive, but you get to choose who will inherit from the trust fund.
This type of trust must be set up during your lifetime when you have full capacity.
This is different from a trust will, as trusts wills only come into effect after you die. You will be the trustee, often alongside your partner, a family member or professional trustees.
Once you have died, the trustees can distribute the assets to the beneficiaries according to your wishes. Your beneficiary can be anyone but is often the deceased’s child.
One of the benefits of this type of trust is that you can put any of your assets, including your home and other property into the trust fund.
There is no limit to the size of the trust, though there could be an issue with taxation. However, there is likely to be a fee for the solicitor to process funds in and out of the trust bank account for a client.
There are numerous reasons the amount your beneficiaries inherit might be affected. Avoiding these risks is a key reason why people set up lifetime trusts. These include:
Family protection trusts generally cost several thousands of pounds, though they generally cost more for a couple than for an individual.
Solicitors advertising these services will often advertise family protection trusts as paying for themselves, as they can avoid probate costs, tax liability, and care fees.
However, clients should be cautious as these trusts do not always work and may not do all they are promised to.
There are pros and cons to setting up this type of trust. While the trust will help you manage your estate, they are often missold which can mean they cost most than they are worth.
To find out if it is right for you, you should seek a free initial consultation from a solicitor to you can ask questions specific to your estate. It is worth getting help and advice from different sources to get the full picture.
There are a number of pros of family protection trusts, including:
However, there are cons to this type of trust. These include:
You should be aware of the problems with family protection trusts before paying the solicitor fees. It is important to choose solicitors who are regulated by the solicitor regulation authority.
Problems can include:
You cannot set up a trust with the purpose of avoiding having to pay for your residential care.
This is called deprivation of assets. If the local authority thinks there has been deliberate deprivation to avoid care home fees, they can contest the trust in court, so the trust will not work and the assets will be assessed for residential care home fees.
Therefore, these trusts should not be set up where care fees are foreseeable. However, while avoiding care fees cannot be the reason for the family protection trust, it can be a benefit.
One of the main benefits is that you and your spouse can continue to live in the house and access property in the trust fund.
As you will be a trustee, you will have full control over things relating to the trust funds. There will be a provision that you will have a right of residence in the house while you are alive.
This is a broad marketing term that includes any form of trust that is meant to protect your assets from risks.
They can be very flexible, and contain elements from lots of different types of trust. Often the phrase family saving trust is used to apply to trusts that deal with income from a business the settlor has ownership of.
Different types of trusts are better for different families, depending on the value and complexity of the estate and what you want to happen to your assets. There are specific asset protection trusts you can look at.
Trust wills are useful because will trusts only come into effect after you die. It is worth seeking legal advice to answer questions on what type of trust would benefit your family and to learn about the details of the trust.
You will still have to pay tax on trusts. It is important to instruct solicitors to prevent unexpected tax consequences.
For a settlor interested trust like a family protection trust, the settlor is responsible for paying income tax, and must report this to HMRC. The rate of tax depends on the trust scheme.
While some people think they can set up a trust for inheritance tax purposes, this is often not successful.
IHT must be paid by trustees on funds over the threshold. Tax can also be payable when you transfer money into the trust fund and on the ten year anniversary of the trust.
There is a range of different tax rates that might need to be paid in relation to a trust. The rules on inheritance tax can be very complex, hence why many law firms have staff who specialise in this area.
Capital gains tax may be payable when assets are put into or taken out of a trust. More capital gains tax may be payable in circumstances where there is more than one beneficiary.
Different solicitors use different marketing terms, so the terms are often used interchangeably.
However, as a rule, asset protection trusts are different in that the client must get a benefit from the trust while you are alive, generally in the form of interest.
Many people transfer their family home into this trust. Which option is best for you depends on the estate and what benefit you are trying to receive. Therefore it is worth contacting a solicitor to get advice on which arrangement is better for your family.
You need to use solicitors to set up a trust, as this area of the law is complex and therefore requires specialist knowledge in order to receive benefits from creating a trust.
Many law firms will have specialist wills and probate teams that have staff who can help clients set up a family trust.
We work with with Quadrant Estate Planning for them to bring you their market leading later life planning support.
They offer a free consultation to discuss your circumstances and see what options you have:
If you would like some help, please leave your details below and someone will be in touch.
Increasing numbers of people are looking for new ways to manage their estate so they have money left to give to their children.
One option is an asset protection trust, however, it is important 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.
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.
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 legal service 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.
You should be 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 legal advice on the tax implications of family trusts.
If the assets are in a trust, they are separate from the rest of the surviving spouse’s assets.
Therefore, when the local authority does their 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 with the intention of avoiding 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.
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 solicitors regulation authority.
Any person you wan, 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 has 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:
We work with with Quadrant Estate Planning for them to bring you their market leading later life planning support.
They offer a free consultation to discuss your circumstances and see what options you have:
If you would like some help, please leave your details below and someone will be in touch.
One method of estate planning is setting up a home protection trust. However, this not without problem, and you should consider these risks before paying for such a trust.
This is a type of trust that protects your rights to reside in your family home. Having a trust makes sure that the home passes on to your beneficiaries, which are often your children.
This potentially avoids the complications of probate and avoiding the council assessing the value of the home for care home fees. Additionally, when the settlor dies, the property in the trust will not be treated as part of their estate.
As a result, when the inheritance tax is assessed, the property in the trust will not be included. These trusts can also be called property protection trusts or asset protection trusts.
Home protection trusts are wills trusts, not lifetime trusts. While you are alive, you and your husband or wife should transfer the ownership of your home into tenants in common rather than joint tenants.
A trust is set up on your death, so your home goes into the names of your trustees, who hold the property on behalf of the beneficiaries, often your children.
After your death, a requirement will be written into the trust arrangement that the surviving spouse can continue to live in the property for the rest of their life.
After they pass away, assets in the trust will be distributed between your beneficiaries. No grant of probate will be needed.
Home protection trusts are suited to couples and partners who have a lot of their assets in the form of property or a family home.
This type of trust especially useful if you are concerned about paying for long term care fees, and you want to ensure that your children get at least 50% of the value of your home.
One benefit of this arrangement is that your partner or spouse can continue to live in and get benefit from the property, even after you pass away.
Yes, however, you cannot have set up the trust to deliberately avoid having to pay for care. This is called ‘deprivation of assets’.
If the council looks at the context of setting up the trust, and thinks that it was set up to avoid paying for care, they have wide discretion.
This can include assessing the property for care costs anyway. Therefore, if your spouse already had health issues when the trust was set up, it is likely this will be deliberate deprivation. Hence, it is worth seeking legal advice, otherwise, the efforts of setting up a trust could amount to nothing.
You should seek legal advice for your specific case. You should appoint someone with knowledge of the legal area to ensure the purpose of the trust is achieved.
Situations have been in the news recently where the solicitor or adviser has not explained the limitations and pitfalls of these trusts to their client, meaning the trust is useless but costly.
You will need to factor in the advantages of these trusts before taking steps to handle your affairs. The benefits can include:
However, these trusts are not always the perfect solution in the administration of your estate. There can be a number of problems, including:
Normally, when you own your home, you have the legal and beneficial rights to the property.
When you put your house in trust, the legal and beneficial ownership is split, so the trustees have the legal ownership, and the beneficiaries have the right to enjoy the property.
When you put your house on trust, you technically will not own it anymore, though it will be in the trust agreement that you can continue living there. The trustees will have control of the property, though the settlor is generally a trustee too, so you can still determine what happens to your assets.
After your death, the asset will be distributed among beneficiaries as set out in the trust document.
This will depend on the complexity of your estate and the tax implications of setting up a protection trust.
In general, setting up a trust will cost between £250 and £1000. It will be more expensive to set up a trust as a couple than as an individual person.
There is generally a fixed fee for legal services and experts to set up the trust, plus conveyancing fees when you move money in and out of the trust account.
If you are interested in exploring this option further, you should instruct legal services with experience of similar cases.
Navigation of this area can be difficult, so you need to make sure you understand the risks involved in protecting assets in a trust, especially if it is determined you are trying to avoid care home fees.
If after assessing the pros and cons of a property will trust, you decide they are not the right option for you to maintain family wealth, you may want to consider the alternative estate management options.
These include:
We work with with Quadrant Estate Planning for them to bring you their market leading later life planning support.
They offer a free consultation to discuss your circumstances and see what options you have:
If you would like some help, please leave your details below and someone will be in touch.
Jane is one of our primary content writers and specialises in elder care. She has a degree in English language and literature from Manchester University and has been writing and reviewing products for a number of years.
