It’s hardly surprising that a growing number of people are looking ahead to their old age to see how they can protect their home against care fees, should they arise, so that they have something left to leave their children.
One way to do this, is to look at something called an asset protection or family protection trust but not only is this sometimes extremely complicated, it is not for everyone, so it is vital to use a solicitor to avoid costly mistakes.
Theory and practice
The theory is that by putting your house into trust and naming someone (usually your children) as the Trustees, you no longer own your home, so should you have to go into care, your property assets will not be used as part of the equation in a local authority means tested, care funding assessment.
It might seem the perfect plan to protect your children’s inheritance – and this can certainly be true if the assets are transferred to a trust early enough – but there are a number of pitfalls.
For example, I have two clients at the moment who are seeing the negative effects of this sort of trust. One was sold it without any tax advice and consequently put an asset in that has triggered a large capital gains tax charge. The other has been left with an unanticipated inheritance tax bill because his father set one up.
Deliberate deprivation of assets
Local authorities – which must carry out an individual assessment if someone needs a care home placement – are increasingly investigating asset protection trusts to ensure that they haven’t been set up to as a way to get out of paying up, particularly where a substantial application for assistance with care is made.
There is a risk that the local authority can ignore the trust and treat the assets as if you owned them, if they can show that you put them into the trust as an act of “deliberate deprivation” to avoid having to pay for your care fees.
There is a common misconception that this only applies for the first seven years after setting up the trust, but in fact there is no such time limit. It is therefore important to be able to show that at the time the trust was set up, you were in good health and had no reason to expect that you would need to go into a care home.
The key issue is timing – when the person made the gift to the trust, could they have reasonably known that they might need care? For example, if the individual was already ill when they signed the property over to a relative, it might look suspiciously like ‘deliberate deprivation’.
An Asset Protection Trust can be a useful tool for protecting your assets for your and your family’s sake but it is essential to set it up when you are in reasonable health and financially solvent, and to take proper professional advice before doing so.
It is always a good idea to plan for the future, even if you eventually decide a trust is not right for you, so looking at your Will and updating it, maybe considering a Lasting Power of Attorney and a review of your affairs generally, using an independent financial adviser as well as a solicitor, is sensible.
Wards Solicitors has a useful Legal Guide – Gifting the Family Home – a Guide for Clients Considering their Options.
For more information on trusts and updating your Will, please contact solicitor associate, Mary Harty, in Wards Solicitors’ Wills, Probate and Mental Capacity team. Mary specialises in the creation and administration of trusts and has been a full member of Solicitors for the Elderly since 2002 and of the Society of Trust and Estate Practitioners since 2003.