Living Trusts: Mis-selling and mis-management on the rise – don’t invest until you have read this

Alarm at the increasing number of older, vulnerable homeowners being misled into paying thousands of pounds for so-called ‘asset protection trusts’ has prompted new and urgent warnings about their dangers.

The Alliance of Lifetime Lawyers, the national association of independent lawyers specialising in legal services for older and vulnerable people, has produced a shocking report highlighting the extent of the problem.

This includes financial losses from the costs of setting up the scheme as well as tax consequences resulting from the incorrect advice, legal disputes, family conflict and loss of property access.

For these reasons, here at Wards Solicitors, we do not recommend them to our clients and in fact, spend a substantial amount of time unwinding them for those who have set one up only to bitterly regret it later.

What are living trusts?

Also known as ‘lifetime’, ‘property protection’, ‘asset protection’, ‘family’ and ‘universal’ trusts – all marketing as opposed to legal terms – the unregulated Will writing sector frequently pushes them as a magical solution to all your tax planning problems.

‘Living trusts’ are established while you are still alive, unlike a will trust which comes into being on death.

Often advertised as a way to transfer your home, and possibly your savings and other investments, with a view to saving Inheritance Tax for your family and avoiding care home fees, the ‘living trusts’ advocated by unregulated firms can carry very real risks.

The Financial Conduct Authority (FCA) has warned about the number of unregulated firms mis-selling and mis-managing these trusts on behalf of trustees who don’t understand what they have invested in or what benefits the trusts actually provide.

What problems can ‘living trusts’ cause?

The report by the Alliance of Lifetime Lawyers reveals that the majority of its members, 95%, have encountered clients who have been mis-sold asset protection schemes and it’s a growing issue.

Nearly three in four (70%) of victims are older homeowners with significant property equity who mistakenly believe these schemes are a safe way to protect their wealth.

In reality, living trusts:

• DON’T save you tax – and can actually lead to a bigger tax bill.
• DON’T necessarily work as a way to shield your assets if you need a care home assessment.
• DON’T shelter your assets from creditors.
• DO prevent you selling your home without additional administration like filling in a tax return and involving the trustees (often your children who may not agree) in the decision to put the property on the market.

Why can living trusts create tax complications?

Without the appropriate advice, the tax implications can be significant:

• A transfer into a trust is a ‘lifetime chargeable transfer’ for Inheritance Tax purposes which could mean that you have to pay tax immediately on setting up the trust, depending on the value of assets transferred.
• Gifting your home whilst staying put is known as a ‘gift with reservation of benefit’ which can still have IHT consequences. This is because if you make a gift but retain the benefit (in this case, living rent free in the property you’ve given to someone else) it forms part of your estate for IHT tax purposes when you die.

This is why tax advice, to make sure you don’t fall into these traps, is so important.

Why can gifting your home to a living trust cause problems?

The theory is that by putting your house into a trust and naming individuals (usually your children) as the trustees, you no longer own your own home.

As a result, the premise goes, if you have to go into care, your property and assets will not be used as part of the equation in a local authority means tested, care funding assessment.

This, however, is not always how it turns out.

• Local authorities are increasingly investigating ‘living trusts’ to ensure they haven’t been set up as a way to get out of paying for care, particularly when a substantial application for assistance is being made.
• There is a risk that if the local authority can prove you put the assets in trust as an act of ‘deliberate deprivation’ to avoid paying care home fees, it can ignore the trust and treat the assets as if you owned them.
• Local authorities can take advantage of insolvency law to challenge living trusts if you have put all your assets into the trust, leaving you effectively bankrupt and unable to pay your way from your own resources.

This is why it’s 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 think you would need to go into a care home.

This includes proving that the trust serves a purpose other than shielding assets from creditors or care home fee assessment.

Is a ‘living trust’ right for me?

It’s important not to assume that a ‘living trust’ is right for you simply because a friend or relative has one.

We frequently have clients come to us on a tide of enthusiasm after attending a wealth preservation ‘seminar’ or talking to someone who has attended one.

If you want to look in to whether a trust is the best way for you to protect yourself, independent, professional legal advice is a must.

Trusts, when set up correctly and crucially, early enough while you are financially solvent and in reasonable health, can deliver good outcomes and be an efficient way to control and safeguard your assets.

The FCA recommends using a solicitor regulated by the Society for Trust and Estate Practitioners (STEP), of which most of our Wills and Mental Capacity lawyers and specialist Trusts Team are members. This ensures they work to set standards of conduct, unlike unregulated trustees.

Get in touch

Wards Solicitors’ Personal Tax, Trusts and Probate team, described as ‘incredibly sensitive and caring’, is recommended in the independent Legal 500 guide for 2026. Partner Ruth Coles is highlighted as a key lawyer and wins high praise from clients.

‘Ruth Coles is incredibly knowledgeable and able to discuss complex needs with clients in a way that they can understand and be confident in the decisions they are making.'

Email Ruth: ruth.coles@wards.uk.com

Phone Ruth: 0117 986 3504