Asset Protection Trusts

Clients need to be warned in respect of asset protection trusts and similar products which are designed to avoid nursing or residential home fees. You may have been invited to forums and conferences at local hotels where ‘financial advisers’ encourage elderly members of the public to instruct will writers to commit to such a trust document.

Unfortunately, these trusts are illegal and are designed to fraudulently avoid residential and nursing home fees and can quite easily be set aside by local authorities and county councils. 

If a client intentionally or otherwise deprives himself of assets by way of such a trust, the intention of the trust is easily defeated. The quasi lawyers that set up these trusts are not regulated and therefore cannot be pursued in the usual way that solicitors can be pursued for wrongdoing or negligence.

Any individual can give away either directly or by way of a lifetime trust, an amount up to £325,000 without incurring IHT charges.  An IHT lifetime trust set up for a sum in excess of £325,000 can give rise to an inheritance tax liability on that lifetime arrangement of 20% and ten yearly charges and further charges when funds are withdrawn.  A settlor cannot benefit from the assets that are held in Trust.

It is quite easy to set up such a trust, it is also just as easy to make a lifetime potential exempt transfer (PET) for a sum of under £325,000 and rely on the seven-year rule to extinguish any potential IHT liability during the party’s lifetime.

The advice is do not commit to an asset protection trust. Any solicitor as a matter of integrity will not provide advice on this aspect of inheritance tax saving and you would be well advised to seek the advice of a solicitor as to other options. It is interesting to note in fact that will writers normally charge well in excess of solicitors’ fees for preparing any will and lasting power of attorney and you should bear that in mind.