Asset Protection Trusts
What is a trust?
The benefits of an asset protection trust
How to make the most of an asset protection trust
What if you change your mind
How much does a trust cost
How to put your assets & property into a trust
As a parent, spouse or provider for any other person, we are all concerned about how our dependents will cope when we have gone. But with careful financial planning it is possible to do far more for those that you leave behind than you may have thought possible.
When we spend our entire lives building up our asset base, it is incredibly depressing to see an increasingly large proportion of that wealth being taken away, either by the tax man or by ever increasing nursing home costs. Seeing your estate devalued in this way can make you feel that all your work has been for nothing and that those we leave behind can no longer enjoy the benefit of a well planned inheritance.
However, by putting your assets into trust, you could potentially avoid a significant amount of the issues created within inheritance today. It may be possible to stop the wealth erosion that exists in today’s society and help to ensure that you can leave more of your wealth to those that truly matter, your dependents. It may also help to answer the question ‘How to avoid carehome fees‘.
What is a Trust
Almost all trusts work in the same way. They transfer the holdings of assets from your name into those of a trust for the benefit of appointed individuals.
At a given time, either on a particular date or on the point of your death, the trustee will then transfer the assets to those individuals whom you intended to receive it.
For those wanting to ensure that their assets remain within their family, an asset protection trust could be the solution.
The Benefits of an Asset Protection Trust
The primary advantage of an asset protection trust, is that it can help ensure more of the wealth you have created throughout your life is left to your beneficiaries and not wasted on unnecessary costs.
During the life of the trust, you can still remain in complete control of your assets and even draw an income from any investments or capital held within the estate.
Asset protection trusts are available in joint or single names and some can even include a property which still has a mortgage attached to it.
If the trust is set up effectively it can potentially:
- Minimise Inheritance Tax Liability – details
- Reduce the Time it Takes for Beneficiaries to Receive Their Inheritance – details
- Avoid Unnecessary Erosion of Wealth Via Extensive Care Home Costs – details
- Choose Who Manages Your Assets – details
- Avoid Care Home Fees – details
- Negate the Possibility of Sideways Disinheritance – details
Minimise Inheritance Tax Liability
One of the most heartbreaking calculations to make is how much of your estate will immediately fall into the lap of the tax man when you die.
Even if you have paid tax all your life, the taxman can still take as much as 40% of the value of your estate simply because it can.
However, if your asset protection trust is set up effectively, a large proportion of the tax liability on your estate could potentially be avoided and more of the wealth that you have built up can be enjoyed by those that you leave behind.
This is not a ploy or a ‘tax avoidance scheme’, but a legitimate legal process that will enable a greater proportion of your estate to stay exactly where it belongs.
For further details please read our inheritance tax advice guide and also our top 10 tips on how to reduce your inheritance tax liability.
Reduce Lengthy Probate Administration
As soon as any individual dies, one of the first things that those that are left behind have to deal with is probate. This is a lengthy and potentially costly administration process used to bring together your assets and allocate them to the appropriate beneficiaries.
But though there will always be some assets which do go through probate, those that are included within the asset protection trust will avoid this procedure altogether.
As the assets within the trust are no longer held in the individuals name, they completely avoid the probate process.
They will not be liable for a lengthy administrative procedure, which can extend the time it takes for beneficiaries to obtain their inheritance by as much as two years and will also not be eligible for any costs associated with the practice.
As the trustees are fully aware of whom the rightful beneficiaries of the assets are, they can simply transfer them over to those dependents who can start to take advantage of the wealth as soon as possible.
Choose Who Manages Your Assets
The worst thing about probate is that the person appointed to manage your assets may not be the same person you would choose and may not make decisions in the way you would like.
By choosing a solicitor you can trust to manage your asset protection trust while you are still alive, you can be sure that you find the type of person that suits you and that your assets are left in the safest of hands.
Furthermore, there will be no guess work when it comes to allocating your assets. All the finer detail of your wishes will be noted within the trust, making your trustees lives easier and ensuring that the entire process is quick and easy for everyone.
Avoid Care Home Fees
Many of us will need treatment from a care home in our old age which can be a worrying thought for those that will now be liable for a significant proportion of the costs themselves. And, if your wealth is tied up in a house or other fixed asset(s), you could be forced to sell your property just to pay for the care required.
The Local Authority’s wealth assessment for contribution to care home costs is still a relatively new policy, but it has shocked the core of many elderly people.
For those that have been paying tax their whole lives, it should be expected that the necessary provision would be made to provide free long term care facilities should it be required.
However this is no longer the case. The level of long term care that your Local Authority will provide for you is now means tested and based on the assets you have built up.
For someone who has paid their mortgage throughout their working life in an attempt to leave their children with an asset for the future, this new policy has changed everything. Instead of being able to pass on their assets to their children in the form of a healthy inheritance they are now forced use almost everything they own simply to pay for their nursing care.
And in times of economic downturn, as more children become dependent on the wealth their parents can leave them, such a change of events is affecting generation after generation.
In fact, it is estimated that more than 100 homes are being sold every week simply to fund care home costs for those whose primary assets are tied up in their homes. (Source: Mail Online)
But this may not be necessary as an asset protection trust could potentially help to avoid this.
By placing assets in a viable asset protection trust, the Local Authority may not able to include assets such as investments, property or savings within their assessments of your financial wealth.
They therefore cannot force the use those assets intended for dependents as a method of payment. Instead, property can stay safe and intact within the trust for the remainder of that persons life and then be passed down to their dependents as is usually intended.
But take care, such a trust has to be viable and unchallenged by the Local Authority. This will only happen if you get good advice on how to set up your trust and make the necessary arrangements in plenty of time.
One of our most commonly asked questions regarding trusts is ‘How to avoid care home fees‘ and people who set up a trust simply to avoid paying care home costs will be identified and their assets will be included. By by taking out the trust well in advance and ensuring you make the arrangements early, such a threat can potentially be alleviated and the assets may remain protected.
Think IFA Article: Over One Million UK Pensioners Forced To Sell Their Home To Fund Care Fees
Avoid Sideways Disinheritance
Have you ever discussed with your spouse what would happen if he or she were to meet another partner after you were gone and even get married again? For some, the idea that their spouse will be happy after they have gone is a blessing. But what would then happen to your joint assets should your spouse then pass away?
An asset protection trust can help to ensure your assets are passed down to exactly who you nominate
Under standard inheritance law, the balance of your estate would pass over to the remaining spouse and, though your children have lost both parents, they would still not receive their rightful inheritance. In fact, the assets could then pass on through the new spouse’s family and never be seen again.
And with families becoming more and more complex, sideways disinheritance such as this is becoming more and more common and is yet another benefit to the asset protection trust.
By tying up your assets in a trust and designating the intended recipient, it does not matter which spouse dies first, or what situation the surviving partner is in. The beneficiaries of all the property will be known and legally bestowed on them when the time is right.
In addition, not only does this make any legal entitlement easier to define, it also reduces the inter-family fighting that inheritance can create.
It is simple and effective but can solve a lot of problems.
How to Make The Most of an Asset Protection Trust
The key to making an asset protection trust work is to prepare early. The sooner assets can be placed into such a vehicle, the more likely the tax man and the Local Authority will look upon those actions favourably and identify that this was a valid action, rather than simply a ploy to get out of paying nursing home fees.
Though you may put your house in trust to ensure that it is passed down to your family, if you do this the week after you find out you need significant nursing home care then the Local Authority is more likely to reject the claim and continue to include your assets in their assessment when calculating how much of the fees you will have to pay.
However, by making the necessary arrangements early, the Local Authority is much more likely to see the trust as a legitimate course of action to keep the home in the family and may therefore potentially not force you to sell it to meet the rising costs of nursing homes.
To make the most of an asset protection trust, it is essential that the trust is set up as early as possible.
For the most effective results putting the necessary procedures into place whilst in good health and relatively young could prove effective. It is never to early and it could help ensure that you can be more confident that the trust will remain unchallenged and that assets will be protected for generations to come.
What If You Change Your Mind
We all know that situations change. People change and the world around us moves on every day, which is why an asset protection trust can also change with you.
Just like a will, you can alter the breakdown or beneficiaries of your trust whenever you wish. There may be a small charge incurred to cover the administration, however it is a small price to pay to maintain control over your assets and ensure you have peace of mind for the future.
Furthermore, a trust can also be cancelled at any time. If you wish to revert title of your assets back then this is also possible with agreement from the majority of the trustees.
How Much Does a Trust Cost
Usually there are no ongoing costs associated with an asset protection trust, there’s simply a one off set up fee to make the necessary arrangements although some trusts may incur a yearly fee.
In this way, it is possible to create your trust for the exact value that you wish knowing that no further costs will be levied on your dependents when the trust is realised.
You will know exactly the level of inheritance that you are providing for each individual and can be sure that it will actually reach them in full, quickly and easily.
Paying the upfront fee to set up an asset protection trust also enables you, and your dependents to save much more in the future.
How to Put Your Assets and Property into a Trust
To make the most of your assets with the aim of them remaining in the family after you die, talk to an independent financial adviser.
They will be able to offer you a bespoke and unbiased service that could potentially ensure your property remains where you intended for many generations to come.
If you would like to be contacted by a regulated financial adviser then please complete the enquiry form below.