Trusts have been used to protect land and houses since the Middle Ages. They were originally designed by wealthy Landowners who wished to protect their assets by leaving them in the capable hands of ‘trusted friends’ when going off to battle, making sure their lands were kept safe for their children – their bloodline.
In today’s world, an Asset Protection Trust is, in layman’s terms, a type of safe where Trustees can hold assets (your home and money) for the protection of beneficiaries.
There are three parties to a Trust:
Settlor: that’s you – the person setting up the Trust.
Trustee: that’s also you – during your lifetime, you are a Trustee of your own Trust, you have also named family members as Trustees.
Beneficiary: that’s you too – (whilst you are still alive)! When you pass away, the beneficiaries become the people named in you Will which is mirrored in the Trust.
As the law dictates that assets are held by the Trust rather than you directly (the Trust holds the assets on your behalf although you are still in control as Trustee), you are protected against any 3rd party attack that may endanger the security of your home.
By transferring your home into a Trust, you continue to live in the property for the rest of your life and you still retain all the benefits and flexibility of owning your own home. You can sell the property at any time or move to a smaller property with the Trust still in place. When you pass away, the property passes to the beneficiaries named in your Will, however, Trustees have the flexibility to remove assets, reinvest them, and take advantage of many current tax benefits if applicable.
There are lots of other benefits too, including:
Any asset held within a Trust usually passes to the beneficiaries within 28 days of death and does not need to go through Probate. Probate is the legal process of ‘proving the Will’, that allows Executors to administer the estate according to the wishes in the Will.
Probate Can Be Expensive
Which? confirms many solicitors charge 3% of the value of the estate – and it is time consuming, around 12 – 18 months to administer. Probate often becomes a burden on family at a very difficult time, particularly if the chosen Executors live many miles away and have busy lives and demanding jobs.
By placing assets in Trust, the need for Probate is removed – saving a lot of time and money in the process. That in itself is a great reason for setting up a Trust..Your Trustees simply send the death certificate to land registry and your name is removed, leaving them able to sell the property quickly and easily and distribute to the beneficiaries saving a huge among of burden, time, and money.
Children Inheriting at The Wrong Time
If beneficiaries were divorcing at the time of your death, any inheritance would be classed as a marital asset – which in turn would form part of the divorce settlement. Your loved ones could potentially lose 50% of their inheritance.
If your children were on benefits, they would lose them if they inherited a lump sum. They would be asked to live off their inheritance and then they would need to submit a new claim for benefits when the inheritance runs out. Disabled beneficiaries may not have a sufficient understanding of how to manage their money and without someone to help them, all inheritance could be lost.
Your children may have an Inheritance Tax (IHT) issue of their own. By leaving their inheritance in Trust, it will not form part of their Estate so not attracting IHT.Children may be dependent on drink, drugs, or have a gambling addiction. Inheriting a lump sum could have disastrous consequences for them – however using a Trust protects against children inheriting at the wrong time – for any reason.
Sadly, many families find themselves in a position where they have to disinherit a child. A child is legally allowed to contest their parents Will and there have been some high profile successes, such as the Ilott v Mitson case in 2017. Even unsuccessful challenges can incur huge costs for the defence. The way to prevent this is to hold your assets in Trust for 6 years or more before you pass away, then your Trust cannot be challenged – keeping your assets safe.
If have left your assets to your child, who subsequently died, and several years later their spouse remarried, everything you had worked for could pass to another family, bypassing your grandchildren completely. This is known as sideways disinheritance.
Currently, anyone with assets above £23,250 may not receive state help with care costs, meaning that many families would have to sell their home to fund care. There is no legal way that you can dispose of assets to avoid paying care fees. This is called deliberate deprivation of assets and the Local Authority will contest this and likely succeed. Whether transferring assets to children or setting up a Trust with the sole purpose of avoiding care fees, it will not work.
However, care cannot be the reason for setting up a FPT but may be a benefit if set up at the right time, for the right reasons, and for the right people. As a result, many of our clients have found that the assets held within their FPT have been disregarded during care fees means assessments.
The first thing the Local Authority do is look at the health of the client when setting up the Trust. If care could be foreseeable, they’ll the look at the reasons for setting up the Trust. As highlighted above there are many reasons (Probate being the main one as it’s definitely going to happen) so there are a number of valid reasons for setting up a Trust and therefore no case for deliberate deprivation. If there happens to be a challenge from the Local Authority our solicitors defend it at no extra cost.
Our solicitor partners who draft the Trust are regulated by the SRA (Solicitors Regulation Authority) and specialists in this field. The Trust has been drafted by the Acer Prime Law. There are no further fees to administer the Trust. The upfront fee covers all the costs.
If ever you run into a care need, please contact The Planning Bee for free support.