Asset Protection Trusts (APTs) are set up during a person’s lifetime. Assets such as property or money, are transferred into the trust which is governed by an agreement known as a Trust Deed. A Trust Deed sets out the terms of the trust and appoints Trustees who manage the trust. The Trustees are generally chosen by you and can include you as the person setting up the Trust.
Trustees have the power to decide how to invest the assets in the Trust. They must act in the best interests of the beneficiaries and are guided by the terms of the trust.
Companies are pushing these trusts as a catch all type of protection. Below we consider the proclaimed benefits and the implications that are often not considered:
- Benefit: “You can protect and maintain your main residence by placing it into a Trust and keep it safe from taxes.”
Implications: If you place your property into a Trust and continue to live there, this will negate any potential Inheritance Tax saving. If you die and your property is sold, Trustees can find themselves left with a significant Capital Gains Tax bill. Advice specific to your circumstances and aims is essential otherwise you may find that you have saved on one type of tax only to liable for another. If you put property and or other assets into a trust you have got to make sure that you are truly able to financially support yourself without it.
- Benefit: “Avoid probate: APTs allow you to guarantee that your loved ones do not need to go through the long-winded, and expensive probate and your beneficiaries’ inheritance is protected against any negative situation. This includes if they eventually get a divorce or declare bankruptcy.””
Implications: Although placing a property into a trust can mean that probate is not required, trusts are not without an administrative burden of their own. Trustees may have to produce yearly tax returns and there can tax due on transferring the assets into and out of the trust, along with additional tax points in some circumstances. Any protection offered is only effective whilst assets remain in the Trust and in all likelihood at some point your beneficiaries will want to realise their inheritance.
- Benefit: “An APT can help you to avoid paying care home fees.”
Implications: If a goal of the Trust is to avoid paying care fees, then there are anti-avoidance measures which can be enforced by Local Authorities to prevent the Trust being effective. In fact, deliberate deprivation of assets to avoid paying care fees is a criminal offence. There are some tried and tested methods available to help mitigate care costs in certain circumstances, it is essential you take legal advice specific to your circumstances.
- Benefit: “Minimise Benefits Complications: The way an APT is set up means that it is unlikely to compromise the benefits status of a beneficiary.”
Implications: If you are a beneficiary of trust, you must declare this to the Local Authority. There are very limited circumstances in which being beneficially entitled to a Trust would not affect means tested benefits. If this is not carefully considered this can result in a Beneficiary being required to pay back benefits received over may years.
- Benefit: “APTs take the hassle away from you as professional Trustees are appointed.”
Implications: Many of the companies that offer these types of Trusts are unregulated, uninsured and not legally or financially qualified. Would you really want to give them control of your biggest asset. You are often giving up your ability to be able to move house freely or even raise a mortgage on your property should this ever be required.
Asset Protection Trusts are often sold as part of a tax planning package costing in the region of £5,000 when they are quite simply not necessary. If you have concerns over an Asset Protection Trust that you have created or if you are considering undertaking any estate planning, then you should always take specialist legal advice and our friendly and knowledgeable Private Client team are happy to speak with you.
