Asset protection and the strategic use of trusts are key to safeguarding your estate and respecting your wishes. At Garratts, our experienced wills & probate solicitors specialise in creating customised trust arrangements, offering solutions for everyone, not just the affluent. We provide expert legal guidance in setting up the right trust for your needs, whether for family members, vulnerable individuals, or your own future security.
What is asset protection, and why is it important?
Asset protection is the process of implementing legal strategies and structures to safeguard your assets from potential future risks such as creditors' claims, legal disputes, or the financial impact of care fees. Financial planning is essential for anyone looking to preserve their wealth and ensure their assets are managed and distributed according to their wishes.
The importance of asset protection cannot be overstated. It shields your hard-earned assets against unforeseen circumstances that could otherwise jeopardise your financial security and the inheritance you plan to leave for your loved ones. Effective asset protection planning can offer peace of mind, knowing that your wealth is secure and that your future plans for yourself and your family are intact.
At Garratts, our experienced team specialises in various asset protection strategies. Our expertise includes:
- Setting up trusts: Trusts are a powerful tool in asset protection. They allow you to transfer ownership of your assets to a trust managed by trustees to benefit your chosen beneficiaries. This can help shield these assets from personal liabilities, care home fees, and other risks while still giving you a degree of control over how the assets are used.
- Navigating legal complexities: Asset protection often involves navigating complex legal and tax implications. Our team is adept at understanding these intricacies and can guide you in making informed decisions that align with your personal objectives and legal requirements.
- Customised solutions: Whether your concern is protecting your property, investments, business interests or ensuring that your loved ones are taken care of, we offer customised solutions. Our approach is to understand your unique circumstances thoroughly and then craft an asset protection plan that reflects your specific situation and objectives.
How can trusts help in asset protection?
Trusts are a fundamental component in asset protection, offering a structured and secure way to manage and safeguard your assets. They provide a versatile solution for various estate planning goals, including protection against future uncertainties.
1. Lifetime trusts/asset protection trusts
Lifetime trusts, commonly used for asset protection, are established during your lifetime to shield assets while maintaining certain controls and benefits. These trusts are particularly effective for protecting properties or investments and can be customised to meet your specific requirements.
Key features of lifetime trusts include:
- Creation and control: You or you and your spouse can establish a trust.
- Retention of possession: You always maintain possession of the asset or house, ensuring security and continuity.
- Beneficiary designation: Typically, you and your children are named beneficiaries, allowing for family-focused asset management.
- Duration and flexibility: The trust remains active during your life or joint lives, adapting to your changing circumstances.
- Trustee management: While the assets are transferred to the trustees, they do not assume ownership. Instead, they manage the trust on your behalf, ensuring your continued rights of possession.
It's important to note that the property must be in your name (or joint name) and free of mortgage. While establishing a trust offers many advantages, it's also essential to be aware of any potential drawbacks, including its effectiveness as an inheritance tax planning tool.
2. Severance of joint tenancy
Severance of joint tenancy involves changing joint property ownership to 'tenants in common', allowing you to leave your share of the property under a Will to someone else, like your children. This step is crucial in estate planning, particularly for protecting assets from potential care costs and ensuring that children receive a share of the family home.
3. Transfer of property
Transferring property is a straightforward method to ensure it passes to your chosen beneficiaries. This can be done outright or by changing the joint names. However, it's vital to consider potential risks, such as:
- The recipient's failure to support the donor may lead to vulnerabilities and the potential loss of their home.
- Divorce, bankruptcy, or death of the recipient which could impact their share of the property.
- Adverse tax consequences may occur for both the donor and recipient.
- Potential implications for Local Authority funding if the transfer is intended to avoid care fees.
What are the risks and considerations in setting up a trust?
Setting up a trust is a significant decision that comes with various benefits but also certain risks and considerations. It's important to be fully aware of these before proceeding with a trust arrangement. Our team at Garratts is committed to providing comprehensive advice, ensuring you understand both the advantages and potential drawbacks.
1. Consider any tax implications
One key consideration is the tax implications that come with establishing a trust. Trusts can be subject to different tax rules compared to individual ownership, including income tax, capital gains tax, and inheritance tax.
The specific tax consequences depend on the type of trust, the assets involved, and your individual circumstances.
2. Eligibility for local authority funding
Another important factor is how setting up a trust might affect your eligibility for Local Authority funding, particularly in relation to care fees.
Transferring assets into a trust can sometimes be viewed as deprivation of assets, especially if done to reduce your estate value to qualify for funding. Local Authorities might perceive such actions and the potential implications for you.
At Garratts, we ensure that you are fully informed about these considerations before proceeding with any trust arrangement.
Deprivation of Assets: What you need to know
The concept of 'Deprivation of Assets' plays a critical role in assessing care fees for individuals requiring residential or nursing home care in England or Wales. Understanding this concept is essential for anyone considering transferring their assets as part of their estate planning.
1. Why you need to be careful
If you transfer assets with the intent of avoiding care fees, the Local Authority can still consider you the owner for financial assessment purposes. This means:
- You may be assessed as having more money than you actually do, leading to higher care fee contributions.
- In some cases, the recipient of your gift may even have to repay the Local Authority if the gift was made within six months of needing care.
2. Don't panic; you’ve got options.
It is essential to seek legal advice before transferring any assets. An experienced solicitor can guide you through the rules and help you plan strategically to protect your loved ones while ensuring your eligibility for financial assistance if needed. For a detailed discussion about the Deprivation of Assets and to understand how it may affect your estate planning, contact Garratts at 0161 665 3502.
