Asset Protection Trusts

There are lots of adverts about Asset Protection Trusts or Asset Protection Trust and how they will save on IHT, Probate costs and care home fees. The cost is a mere one or two months care fees and will protect your home and provide certainty.

It all sounds fabulous and for any Trusts that work, they may have a place, but they do not fulfil what the adverts say. Anyone contemplating such a Trust should do so with the full knowledge of what they are doing.

These Trusts can potentially be challenged and with Local Authorities increasingly short of money, they will be increasingly challenged. Whether or not they are challenged depends upon the circumstances in each case, so there is no built in certainty.

With regards to saving IHT, it depends on how soon after transferring the assets into the Trust that the donor dies, it might save some IHT, but the donor should consider whether IHT was ever an issue for them. There may be some IHT to pay initially and therefore they should take detailed tax advice before entering into one of these Trusts.

With regards to saving on Probate fees, the fees are £45 via a solicitor and £105 if done privately, but if there are sufficient assets still held outside the Trust; Probate may need to be obtained anyway. It may save on costs in respect of the administration of the estate, but it will incur costs on administration of the Trust, often not very different in the end.

Finally I’m going to mention the T word in more general terms – tax! A Trust is a taxable entity in its own right, so potentially subject to Capital Gains Tax and Income Tax. There should be a minimum of annual Trustee meetings and a tax return may have to be completed, depending on the assets in the Trust. Trusts have a “hassle” factor that needs to be taken into account

So having said all of that, I’m not totally opposed to these Trusts, but I’m opposed to bad advice. The choice to enter the Trust is the individuals, but they should fully understand the risks and benefits. Most clients I speak to choose not to enter them or gift their property, any of my clients that do are making an informed choice. The circumstances around each client are different and so the effectiveness of each Trust will be different.

I’m very much in favour of clients making informed choices, following full and clear advice about the advantages and disadvantages of their actions. That would be true for everything, not just these Trusts.