Asset Protection Trusts Explained
Recent headlines have warned that thousands of people may have been mis-sold so-called asset protection trusts (otherwise known as asset preservation trusts and family protection trusts).
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These products have been marketed as a way to reduce inheritance tax and shield property from being used to fund care home fees. For families concerned about passing on their home and savings, it can sound like the perfect solution. Sadly, the truth is far more complex, and many families are now finding themselves caught in a costly and stressful situation.
What Are Asset Protection Trusts?
An asset protection trust is a legal arrangement in which you transfer your property or savings into a trust, with the intention of protecting those assets for your chosen beneficiaries. They are sometimes promoted by unregulated companies that claim to offer two major advantages. The first is protection of your home and savings from care home fees. The second is a reduction or the elimination of inheritance tax.
These promises can be misleading. While trusts are a legitimate part of estate planning when set up properly, many of the asset protection trusts currently being sold do not comply with the complex rules around care funding and inheritance tax.
Why Are Asset Protection Trusts Being Mis-sold?
The main reason is that the rules around inheritance tax and care home funding are very different. The 7-year inheritance tax rule does not apply in the same way to care home fee assessments. Unfortunately, some companies gloss over this distinction. They may suggest that simply moving your property into a trust guarantees protection. When, in reality, local authorities and HMRC have powers to look closely at the circumstances.
Clients are often persuaded to sign up because they fear losing everything to care costs, or because they want to make sure their children inherit as much as possible. While these are understandable concerns, the solutions being sold are often unsuitable or legally ineffective.
The Risks of Mis-sold Trusts
Two common problems arise with mis-sold asset protection trusts:
1. Care home fees and deliberate deprivation of assets
Local councils assess whether a person can afford to contribute to their care through a process known as a means test. This includes looking at income, savings and property ownership. If you transfer your home into a trust, this usually has the effect of depriving you of direct entitlement to its value. The council will likely ask why you did so. If they believe the main reason was to avoid paying care home fees, this may be treated as deliberate deprivation of assets. In that situation, you will be assessed as if you still owned the home, and the trust provides no protection at all. Families may then face the exact fees they were trying to avoid, despite having already paid to set up the trust.
2. Inheritance tax complications
Inheritance tax planning is a highly specialised area. An asset protection trust that is poorly drafted may not reduce inheritance tax at all. In some cases, it can even increase the liability. HMRC can challenge trusts that do not comply with the law, leaving estates facing unexpected tax bills. Worse still, families may discover that unwinding a defective trust is expensive and time-consuming. It can create unnecessary stress at an already difficult time.
Red and Green Flags to Watch Out For
Red Flags
- Advisers who are not regulated by a financial or legal authority. People or companies that offer estate planning services when they are not properly qualified or accountable to a professional body.
- Advisers who apply pressure and use emotionally manipulative sales techniques when you query aspects of the scheme or ask to take time to consider your options.
- Firms who appoint themselves as trustees, without explaining what that means, or discussing alternative options. This is a chance for them to ask you to sign over property or asset ownership.
Green Flags
- Regulated legal professions are your best bet. Fully qualified solicitors who hold a valied and current practicing certificate and who are regulated by the Solicitors Regulation Authority (SRA) or Law Society of Scotland (LSS). Also CILEX Fellow Members (FCILEX).
- The trustees’ roles, including their responsibilities, reporting requirements and duties, are fully explained.
- Advisors who are patient and understanding with all of the queries you raise, and who don’t apply time pressure on you to make a decision.
Our Experience at Winston Solicitors
Our Private Client team has already had to unpick trusts that were sold on the promise of care fee protection or inheritance tax savings. In practice, these trusts have either achieved very little or created new problems. Families often come to us when it is too late, having spent thousands of pounds on schemes that do not deliver.
At the same time, our CHC specialists regularly advise on cases where local authorities have accused families of deliberate deprivation of assets. These are complex situations where careful legal argument is needed to protect clients from unfair charges.
The combination of these two areas of expertise means we are uniquely placed to help families caught up in the current wave of mis-sold trusts.
Safer Alternatives for Planning Ahead
If you’re worried about the cost of care or about inheritance tax, there are better options than relying on an unregulated scheme. Professional advice from a qualified solicitor can help you explore alternatives such as:
- Properly structured wills, trusts and lifetime planning arrangements that comply with inheritance tax law
- Reorganising property ownership, including property protection trusts, such as a life interest trust in your will, that are legally robust and tailored to your family’s circumstances
In addition, it is important to remember that, in some cases, the cost of care should not fall on families at all. If your needs are primarily health-related, the NHS may be responsible for paying under NHS Continuing Healthcare (CHC). Our CHC team can advise you on eligibility and help you challenge funding decisions if necessary.
Why Local Advice Matters
We are proud to be based in Roundhay, North Leeds, and many of the families who come to see us are local people who want to secure their homes and savings for the next generation. Because we work in the community, we understand the real concerns people face and can provide advice that is both practical and realistic.
While the headlines about mis-sold trusts may be national, the impact is deeply personal. Every family’s situation is different, and a one-size-fits-all trust sold by an unregulated provider rarely offers the right solution.
Don’t Be Misled by Asset Protection Trusts
Asset protection trusts may sound like an easy fix for both care home fees and inheritance tax, but if they are mis-sold they can leave families in a worse position than before. With the issue now making headlines, it’s more important than ever to get advice from solicitors who understand both Private Client law and care home fees, including Local Authority means tests and NHS Continuing Healthcare funding.
We combine these areas of expertise to give clear, reliable guidance. If you are considering an asset protection trust, or if you already have one and are worried it may not be valid, contact our team today. Early advice can save you and your family from unnecessary stress and expense in the future.
Call 0113 320 5000 to speak to an expert about CHC or inheritance tax. Alternatively, you can email the Private Client team at wills&probate@winstonsolicitors.co.uk, or the CHC team at jub@winstonsolicitors.co.uk.
