A Will isn’t your only option when considering how you want your estate to be distributed after you pass away. You can also choose to open a Family Protection Trust, which helps you protect your assets and gives you greater control over what happens upon your death.
What Is a Family Protection Trust?
A Family Protection Trust, or Settlor Interested Lifetime Discretionary Trust as otherwise known, is essentially a safety deposit box in which you can place your assets during your life and retain full access to them until your death.
You can move, sell, and invest your assets without restraint whilst protecting them from ways that might cause a loss to your estate.
Your estate could be reduced for many reasons, such as:
- Inheritance Tax (IHT)
- Probate costs
- Sideways disinheritance can occur if your spouse remarries after your death and passes your assets on to their new partner, excluding your children and other beneficiaries.
- Care fees
- Claims on your estate from someone left out of your Will.
As the trustee of your own Family Protection Trust, you can choose who you would like to inherit from it. You can also appoint others as a trustee, such as a partner, family member, or professional.
What Are the Requirements for a Family Protection Trust?
Anyone over the age of 18 and of sound mind can set up a Family Protection Trust. During your lifetime, you can place any of your assets into your Trust, including your home or any other property. Although there are no limits regarding the size of your Trust, taxation may be an issue if you exceed the £325,000 tax-free Inheritance Tax cap.
What Are the Benefits of Opening a Family Protection Trust?
Along with protecting your assets when you are still alive, there are several other benefits to opening a Family Protection Trust, including:
- Providing your partner with funds or housing until they pass away, knowing that your child will eventually inherit ownership.
- A Family Protection Trust ring-fences your assets so that you do not officially own them. If you are means-tested for care, they do not count. In turn, care fees reduce.
- A more flexible solution will give you peace of mind that your beneficiaries will receive what you are leaving to them.
- Trusts can reduce the risk of another family member claiming your estate. For instance, if a disinherited child wants to contest a Trust, doing so will be incredibly difficult.
- A Trust has the potential to avoid the probate process, which makes the administration of your estate much more straightforward.
- A Trust can last for up to 125 years, meaning that you can choose when your children or beneficiaries gain access.
However, some potential disadvantages come with opening a family trust as well:
- The cost of Family Protection Trusts can be high, especially when considering solicitors fees on top of the cost of administering your estate. Costs can run into the thousands of pounds, and additional fees can be added for moving assets in and out of the trust.
- Your trustee has utmost power with a Family Protection Trust, so it is vital that you trust them or employ an impartial professional.
- Your estate may be subject to heavy Capital Gains Tax (CGT).
- Yearly tax returns may need to be filed.
- The authorities may raise questions about the intentional deprivation of assets and bring a claim on your estate.
In the case of care fees, you cannot open a Family Protection Trust with the sole purpose of reducing costs. This is intentional deprivation of assets and could be contested in court by authorities. However, reduced care fees can be a benefit of these Trusts nonetheless.
Even though one of the advantages of a Family Protection Trust is reducing taxes and probate, there still may be costs involved. Solicitors and advisors should explain details about taxation and answer any questions, so you know precisely what a Trust entails.
When it comes to setting up a Family Protection Trust, it is in your best interest to seek legal advice. These Trusts can be incredibly complicated, and some can offer false promises. In addition, some services are overpriced.
Family Protection Trusts ensure that your wishes are met after you pass away. They can have many benefits, including the potential to avoid high probate costs and ensure that your beneficiaries receive their inheritance at the right time. However, it is important to be aware of the possible drawbacks and consult a legal professional before creating one.
Do you have more questions about Family Protection Trusts? Contact The Planning Bee today. Our team of expert paralegals are available for a chat about any queries or concerns that you may have. They can also offer advice and guidance and inform you of our services.