Older homeowners are increasingly being targeted by firms hoping to profit by selling so-called ‘asset protection trusts’, costing thousands of pounds. Not only are the trusts ineffective, but they can also leave homeowners with complex legal difficulties when they find they no longer own their properties.
The Financial Conduct Authority (FCA) has been warning about these trusts for several years. Some firms specialise in setting them up, with an estimated 18,000 schemes in place in England and Wales.
What is an asset protection trust?
Asset protection trusts are marketed as being a way to avoid Inheritance Tax and also ‘sideways disinheritance’, which can occur when one joint owner of a property dies and the other remarries then dies, so that there is a risk that the property will pass to the new spouse’s children and not to the children of the original couple.
There are simple and cost-effective ways to avoid this without using an asset protection trust.
It may also be suggested by those trying to sell these types of schemes that putting assets into a trust is a way of avoiding care home fees. In fact, this is known as deliberate deprivation of assets, and it is not legal. If the local authority suspects that this has been done, it has the power to reverse the transaction.
Asset protection trust firms persuade people to put their property into a trust, at which point it is owned by the trustees and not the homeowners. Many asset protection trusts put their own employees as trustees. This means that the homeowners are no longer able to sell their property without locating the trustees and obtaining their consent.
The average amount charged for setting up an asset protection trust is between £3,000 and £5,000.
The problems with asset protection trusts
Those persuaded to put their property into an asset protection trust often do not fully understand the implications. Trust law is complex, and it is not in the interests of those setting up the trust to explain matters clearly.
The Association of Lifetime Lawyers (the Association) has stated that asset protection schemes ‘don’t deliver’ and that they offer ‘false promises.’ It spoke to one hundred of its experienced lifetime lawyers about the problems caused by asset protection trusts. Of those questioned, 95% had encountered clients who had been mis-sold asset protection schemes. Key problems caused are:
- Unexpected tax liabilities
- Loss of control over property
- Legal disputes, legal expenses, and emotional stress
- Difficulty exiting the trust
- Family conflict
The Association notes that vulnerable homeowners are aggressively targeted, businesses are often unregulated, and the schemes are ‘complex and often worthless.’
The Association says that 89% of cases identified involve unregulated providers, with two-thirds of the firms operating completely outside of any regulatory oversight.
Consumer warning campaign
The Association is carrying out a consumer campaign which aims to educate people on the risks of asset protection trusts. Its research found that 70% of those targeted are older people who own their homes or a significant portion of their homes.
The firms selling the trusts appointed themselves as trustees in 80% of cases, with clients not having full knowledge of this or consenting to it. In 75% of cases, clients had suffered financial loss, with a similar number of their families going through emotional distress or conflict.
In 82% of cases, clients were falsely led to believe that the trust would protect against care fees or tax. Pressure-selling tactics were used, including time pressure and fear-based marketing tactics.
More clients are likely to experience difficulties over time if they wish to move house or when the time comes to administer the estate.
While the problem has been around for several years, the Association’s members report that it is on the increase, including over the past year.
The Association lists the following as common in trust mis-selling:
- Lack of proper explanation or documentation
- Inappropriate use of trusts in place of regulated advice
- Absence of informed consent, clear understanding, or independent legal checks
- Growing public confusion over what a trust can and can’t achieve
- Lack of understanding of the immediate and future tax consequences
- A total loss of control over the consumer’s own assets
- Encouraging consumers not to use regulated providers on the basis they will be more expensive
Avoiding asset protection trusts
To ensure you have control over your assets and that you pass them on in the way that you want when the time comes, speak to an expert Wills and probate solicitor. There are simple ways to avoid issues such as sideways disinheritance without giving away control of a property by putting it into a trust.
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If you would like to speak to one of our expert estate planners, ring us on 01634 353 658 or email us at rob@pembrokewillwriters.com