Asset Protection Trusts – Beware the Salesman

There has been much media coverage recently of this type of trust with articles running in the Mail and the Guardian and as a result solicitors are seeing a high influx of client’s giving instruction in this respect. However, not all the headlines are positive.

In May this year eight people were jailed at Nottingham Crown Court for selling so-called “Asset Protection Trusts”. The defendant’s in this case effectively cold-called on elderly clients to persuade them to use and set up this type of trust (which is effectively a life interest trust) on the basis that it would be a fail proof way of ensuring they were not liable to sell their property to pay for care home fees. They were highly lacking in any sort of degree of legal expertise and missold a product to many elderly and vulnerable people using a hard-sell approach.

Legal practitioners take the view that the Local authority can reserve the right to disregard this type of trust regarding it as a deliberate disposal of the asset and this is something that was not being brought to the client’s attention in this case.

The group were also guilty of carrying out the reserved legal activity of preparing trust documents and advising incorrectly on Will writing and preparation of Lasting Powers of Attorney. Consumers need to be alert to the fact that certain individuals are not qualified and cannot provide tailored advice. They are unregulated and often highly unscrupulous in terms of the levels of fees they charge and deals they strike with clients.

Gifting a Property to children v Settling the Property into Trust

As people grow older they frequently wish to gift their home to their children – this can be motivated by a number of factors:-

  • Children willing to give parents financial assistance to meet outgoings and costs in return for the security of knowing the property has been transferred to them.
  • The property may still be the home of the grown up son or daughter and the parent wishes to give the child peace of mind the property will pass to the child on their death.
  • The parent may wish to continue to reside in the property but pass the responsibility of looking after the property to their children and recognise this responsibility with a transfer of ownership.

However, it is important to be aware from the outset that this is not an effective gift for Inheritance Tax purposes as it amounts to a gift with reservation. There are also dangers to be aware of in simply gifting your property outright to your children being;

  • Financial misfortune – if the child was declared bankrupt or to draw up debts the property could be pursued as their asset by creditors.
  • Matrimonial breakdown – the property would be classed as an asset belonging to the child and possibly form part of their divorce proceedings.
  • Unexpected death of child – the property would form part of the child’s estate and a sale of the property could be forced.
  • Breakdown in relationship with child – although at the time of transfer relations are good, this may change in the future and the child could insist the property be sold.

Gifting a Property into Trust – Life Interest Trusts

A better solution would be to settle property into a life interest trust.

Powers under this type of trust are very wide and enable the donor to;

  • Sell the property at any time and use the sale proceeds to buy a replacement property. If there are surplus proceeds these can be invested in the trust and provide an additional income to the donor.
  • The donor has the comfort of knowing they can remain in the property for as long as they may need and the children are reassured that under the terms of the trust, on death of the parent, the property or proceeds derived therefrom will ultimately be theirs.
  • If the donor was at some point unable to continue to live in their property and required nursing home care, a life interest trust may effectively enable the property to be ring-fenced from any assessment made by the Local Authority to establish how the elderly person will fund their care. However, each person’s circumstances are different and need to be considered in this respect. However, the length of time that an asset has been in trust does have a significant effect. It is very important to be aware that the Local Authority can, in particular circumstances, disregard the trust under the deliberate deprivation of assets rules.

It is highly advisable to seek legal advice from your solicitor who can sit down with you face to face and give advice tailored to your needs. Solicitors are regulated ensuring that fees are fair and in line with industry standard. The Wills, Probate, Tax and Trusts Department advises on all types of trusts including life interest trusts and whether they are suitable to your situation. For further information please contact Kirsty McNulty, solicitor on 01772 220022 or use our contact form to request more information.

Kirsty McNulty

About Kirsty McNulty

Kirsty McNulty is a Solicitor within the Wills, Probate, Tax and Trust department at Forbes Solicitors. Kirsty’s blogs cover her specialisms of drafting wills and trust Wills, Lasting Powers of Attorney, various Trusts such as PI trusts and Asset Protection Trusts, Court of Protection applications and all other areas of private client law. Kirsty specialises in assisting elderly and vulnerable client’s and is a fully accredited member of Solicitors for the Elderly.
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