As unscrupulous companies continue to invite older individuals and couples to put their homes into asset protection trusts to avoid payment of care home fees, we explain the dangers. Asset protection trusts are often promoted by unregulated and uninsured firms and the sale of these schemes has been described as the next big mis-selling scandal.
Asset protection trusts, also referred to as universal protection trusts, are targeted at those who want to put their homes and other assets out of reach of local authorities in the event that care home fees need to be paid.
Those considering putting funds into a scheme may also be told that they can avoid Inheritance Tax.
What are the options for Will storage?
The main choices for storing a Will are as follows:
- Store it with the government’s HM Courts and Tribunals Service
- Ask your solicitor to keep it in their strong room
- Keep it at your bank
- Put it with your own papers at home
What is an asset protection trust?
Companies offering asset protection trusts claim that they are a way of putting money and property into a trust to avoid taxes and care home fees, while still having access to the funds.
Substantial charges are made by the firms to set up the trusts.
Why should you avoid asset protection trusts?
Getting rid of assets to avoid having to use them to pay for care home fees is referred to as deliberate deprivation of assets and is a criminal offence. Local authorities have the power to undo a transfer that has been carried out with the intention of avoiding paying for care home fees. This is the case no matter how long ago the transfer was carried out.
Because asset protection trusts are designed specifically to avoid paying care home fees, they exactly fit the definition of ‘deliberate deprivation of assets’. Simply by setting up an asset protection trust, an offence is committed and the assets in the trust can be claimed by the local authority should an individual be left with insufficient money to pay for their care.
In addition, if the property is sold, Capital Gains Tax will be payable as it no longer belongs to you but is owned by the trust. Normally, when you sell your principal residence, there is a Capital Gains Tax exemption. However, once your property has been put into a trust, it no longer qualifies for tax relief.
Inheritance Tax can also be payable when the trust is set up if the value of property put into the trust is over the joint £650,000 threshold.
An Inheritance Tax valuation of trust assets is carried out every ten years and where the value exceeds £325,000, tax is payable on the amount over this sum.
The companies offering these trusts may insist on being the trustees, meaning that your property will be put into their names on the Land Register. Many of these businesses are disappearing as problems come to light, leaving individuals in difficulty, should they want to sell the property, as they no longer own it and the registered owners, the trustees, have vanished.
How can I protect my property against care home fees?
It is not possible to legally take steps to put your property beyond the reach of the local authority with the intention of forcing them to pay your care home fees. However, if you jointly own a property with someone else, you can each protect your own share of the property from being used to pay the other person’s care home fees.
This is done by having the type of joint ownership referred to as a tenancy in common. You will each own a specified share of the property and, should one of you die, their share will pass under the terms of their Will.
You can leave your spouse or partner a life interest in your share of the property. Once they die or leave the property, your share will pass to your chosen beneficiaries, for example, your children.
This means that your spouse or partner can continue to live in your shared home for as long as they want but, should they move into care, the local authority will not be able to claim your share of the property, only theirs.