Over recent years, Asset Protection Trusts have been sold to the public as a way of ring-fencing capital to ensure it is not eroded by care home costs, inheritance tax and other potential asset corroding activities.
But when it comes down to the crunch, does this process of storing away your funds for the next generation actually work?
And will it stop the Government being able to liquidate your assets to pay for your care when the need arises?
We take a look to see if these financial packages really do make a difference.
What is an Asset Protection Trust?
An asset protection trust is a financial product sold in the UK which allows you the right to transfer ownership of your key assets, such as your property and large value items, and place them in the name of a trust.
On your death, the trust will then transfer ownership of these assets directly into the name of your nominated beneficiaries therefore avoiding probate and inheritance tax.
Furthermore, if your large value assets are no longer in your name whilst you are alive, then the theory states that local authorities are unable to incorporate these assets into the calculation of your wealth when it comes to your liability to pay care home fees.
And if your assets cannot be included within your wealth assessment, they also cannot be liquidated to pay for such costs, therefore protecting them in the long term.
When Asset Protection Trusts Do Not Work
Recently, In some of the media such as The Telegraph, Asset Protection Trusts have been receiving a lot of bad press when owners of such trusts have found that, when the time comes, the authorities have been able to challenge the viability of the trust and therefore access the assets to pay for ever rising carehome fees.
So why has this happened?
In truth, the trusts that have not upheld when challenged are those that should never have been sold in the first place.
Trusts are for a specific sector of people and if you are trying to set up an asset protection trust later in life, solely to stop your assets being used to pay for imminent permanent care, then the system is never going to stand up to scrutiny.
Making Sure Your Trust Works
The key to making sure an asset protection trust will hold up when it is required is to ensure that you are in a credible situation when you set the trust up.
This means you should be:
– Fit and healthy with no indication that you will need to use carehome facilities in the near future
– You are not reaching retirement age
– Financially Stable with no liquidity issues
– Have a reason to set up the trust other than simply avoiding paying carehome cost
In this situation, an asset protection trust can not only ensure you avoid liquidating your key assets for care home fees, it will also help you reduce inheritance tax liability on your estate; protect your assets from dilution against sideways disinheritance and divorce; and can even help protect your personal belongings in the event of bankruptcy.
When they are set up in the right way, and for the right reasons, an asset protection trust can definitely work, it’s just a matter of making sure you do it right.
The Next Steps
If you would like to know more about setting up an asset protection trust to stop your assets being liquidated to pay for care home fees, then contact an independent financial advisor as soon as you can. The quicker you start the process, the more viable your trust will be.
However, if you already hold a trust and feel you may have been miss-sold this product, then contact the person who sold it to you or seek advice from a reputable IFA. They should be able to put your mind at rest and make sure your assets are in the best place.