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Wealth preservation schemes – Part 1


I’ve just been handed a leaflet about this fantastic scheme to preserve your wealth against the threat of dreaded care home fees.  This totally amazing scheme will also save you thousands in probate fees, save taxes and avoid any misdirection of assets – I’m surprised it doesn’t make cappuccino as well!!  It also says that the Court will take control of your assets if you lose capacity.


So to give a balanced view of these kinds of schemes, I’d like to say the following:  They might work, but they might not – there is no guarantee.  One of the important things to understand about these schemes is that they are potentially challengeable and depending on the sales tactics of the company selling them, they can be even more challengeable.  I have heard on the grapevine of a Local Authority that challenges every single scheme created by a certain company, as they are aware of the sales tactics used and consider every single one to be a potential deprivation of assets.


If you move your assets into a Trust, which is what these schemes are, then depending on when you go into care in relation to the date of the transfer of assets, the Trust can be undone.  So if you need Local Authority financial support within 5 years, the Local Authority can apply for a bankruptcy order to get the Trustee in bankruptcy to undo the transaction, not a nice thing to happen!  Even after 5 years, the Local Authority can still financially assess you as though you own it (although after that amount of time they might not).


It might save Inheritance Tax, but you would have to live for 7 years after the date of the transfer of assets, otherwise the IHT is still.  Even if you do live for 7 years, the Trust is taxable in its own right, so you will be paying tax and if you have transferred your house into a discretionary Trust and have not been granted an interest, then you could be paying tax on something that was exempt from tax.  The message is that there is potentially no huge saving on tax, in a good scenario there might be a saving, in a bad one, there could be more tax to pay!


Saving thousands in Probate fees.  The cost of getting the Grant of Probate is £215 if you are applying privately or £155 if you apply via a solicitor, so not thousands then!!  If you choose to appoint a solicitor to assist with the administration of the estate, then the fees will vary depending on the size and complexity of the estate and yes, they could be thousands.  But it will cost thousands of pounds to create this trust, so no overall net saving and it will cost hundreds or even thousands to administer the trust during its lifetime.  So yes, there is are no fees on death, which is at a time when you no longer need the money, but there are fees during lifetime, when you might need it.  This is a total red herring and hides what is really going on.


How about misdirection of assets?  For that to happen, then there will need to be no planning or poor planning, as in a Will you can direct exactly who you want to have your assets after death.  A Will also gives you options to change your mind as life and circumstances change.  Once assets are in a Trust, then they belong to all the various named beneficiaries, so what if someone new comes into your life and you want to include them?  Unless there is a clause that says that you can add a new beneficiary into the Trust, then you can’t benefit them, so the Trust may create a misdirection of assets. It might work in some circumstances, so if your surviving spouse remarries, you may not want their new spouse to benefit and you probably want to ensure that the assets ultimately return to your children and this could work well, but there are issues with this.  Good Will planning is essential and review the Will to ensure it is still relevant.