Asset Protection Trusts – Don’t believe the hype?

Asset Protection Trusts – Don’t believe the hype?

In recent years there has been increasing media coverage, and public concern, regarding the growing number of older people who have to sell their homes to pay for long term care.

This has led to the proliferation of schemes often referred to as 'Asset Protection Trusts' which are advertised as a way to prevent homes from being sold to pay for care.

These schemes are usually sold by new entrants to the legal services market who aren't qualified solicitors, often with aggressive marketing techniques and fees heading into four figures. Some organisations take a long established legal concept, the trust, and use it to create a 'product' which is then packaged and sold as being a means to avoid care fees.

The term 'Asset Protection Trusts' is really just a label for a type of trust.  Trusts have long been widely used and are appropriate in many cases for estate planning and asset management purposes. However, they should not be entered into without detailed, very specific advice from suitably qualified professionals who are properly regulated and have the long term interests of their clients at heart.

Advice should always be taken from a suitably qualified person such a member of Solicitors for the Elderly or the Society of Trusts and Estates Practioners.

Transferring an asset into a trust does not guarantee avoidance of care fees.  Local authorities can, when deciding a claim for assistance, look for evidence of deliberate or intentional deprivation of capital.

A transfer of capital will be regarded as deliberate if a person transfers an asset out of his or her possession in order to put him or herself in an improved position to obtain assistance.

Deprivation must be deliberate and its effect must reduce resources available to pay care home fees which are clearly and to the knowledge of the person making the gift likely to fall due in the near future.  It need not be the only motive; it must be a significant one.

There is no time limit on this; if there is a tainted motive then it does not matter how long ago the deed was done the rule still applies.

Many people believe that after 7 years a transfer is 'safe' but this is not necessarily the case.

Local Authorities know the basis on which Asset Protection Trusts are being sold; it is difficult to show any other motive for entering into an Asset Protection Trusts.

Entering into an Asset Protection Trust is not an effective method of Inheritance Tax planning and many people who sign up are below the tax thresholds anyway.

This does not mean that you are powerless to try and protect your assets.

It is vital that those with assets do take effective advice as to how they can best arrange their affairs without falling foul of Local Authority rules.

Trusts can still be an effective tool and a bespoke trust may not attract the suspicions of the Local Authority in the same way as a heavily marketed, off-the-peg product.

Wills can be set up to create trusts that take effect after the death of one spouse, leaving part of the house to the children on the first death subject to a life interest in favour of the survivor.

Providing family members with power to manage your affairs should you lose capacity, via a Lasting Power of Attorney, can help ensure that effective investment continues even if you can't make decisions yourself.

At Garratts our accredited, qualified solicitors can assist you with all aspects of estate planning. Please call us on 0161 665 3502

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