Everything You Need to Know about Asset Protection Trusts
Written by Amy Douch | Wills, Trusts, Tax and Probate Team | 10 July 2024
You may have heard of Asset Protection Trusts (APTs), sometimes known as Family Protection Trusts, in the news, or perhaps you or a loved one has a trust in place you started some years ago.
There are some important facts and serious risks and obligations you should consider for Trusts which are already in place, or before proceeding with any new Trust arrangement. APTs are essentially a type of trust you create during your lifetime which you can then transfer your assets to, meaning the trust owns your assets rather than you.
Whilst there are some circumstances where APTs are appropriate for certain clients, many APTs were previously advertised as being able to safeguard your assets from potential care fees, inheritance tax and/or probate fees in the future. Unfortunately, many Trusts created for this purpose were mis-sold and may not protect against potential care fees, will only save minimal probate fees and have created additional problems including tax and reporting obligations and liabilities. These additional tax and reporting issues arise whilst the trust is in place, but also can create further problems on death of the person who created them.
Sadly, this means the very people who put APTs in place to make things easier for their loved ones, are now the people who have additional tax liabilities and complex reporting obligations, which they were often not advised about when they set up the APT. Many firms who advertised and created APTs such as Universal Wealth, McClures Solicitors, Philips Trust Corporation and Goldstar Law (to name a few) are no longer in business, which can add further difficulties in trying to locate documents, understand or change the trusts they put in place.
If you or a loved one are concerned about an APT, we understand this can be a distressing time. We can help you review your documents and advise you on the options available. Many clients who review their APTs and take legal advice are instructing lawyers to help them end the Trust arrangements and settle the tax liabilities. However there can still be some benefits of APTs so it is important to take legal advice based on your specific circumstances to understand the implications for you.
Trusts can be a complex area with many potential issues, which can be mitigated with the right knowledge. We have set out some important information below to help you understand more about these Trusts.
What is an Asset Protection Trust?
With Asset Protection Trusts, your assets are transferred to trustees to manage on behalf of the beneficiaries. You can still use and benefit from the assets during your lifetime, however overall control of them lies with the trustees you appoint.
What are the Benefits of Asset Protection Trusts?
Avoiding Probate delays: APTs can help your loved ones to avoid a potentially lengthy probate process as Trustees can deal with transfer of your assets rather than waiting for a grant of probate. The current timescales for probate are 16 weeks (as at 2024)
Avoiding Probate fees: APTs may help your loved ones avoid paying the probate fee of £300 (as at 2024) however depending on which assets are transferred into the trust and which remain in your name, a grant of probate may still be needed even if you have an APT
Privacy: APTs can help you structure a private trust in your lifetime with Trustees you choose. This should not be a matter of public record, as opposed to your Will which could become a matter of public record once probate is granted
Tax Planning: Properly-structured trusts can offer certain tax benefits, which can reduce liabilities for you and your beneficiaries
Future-Proofing Inheritance: APTs can protect your trustees’ inheritance from common issues, such as a divorce or bankruptcy
What are the Common Issues with Asset Protection Trusts?
Loss of Control: once assets are placed in the trust, you relinquish control over them to the trustees, which can be uncomfortable particularly if the trustees who now own your assets are part of companies which have been wound up
Deprivation of Assets: if the trust is seen as a way to avoid care home fees by reducing the value of your assets, it can be challenged by the local authority. This is known as deliberate deprivation of assets. This means the assets can still be taken into account and used to pay care fees, even though you no longer own them
Tax Complications: poorly structured trusts can lead to unexpected tax liabilities, including Capital Gains tax, Inheritance Tax, income tax and stamp duty land tax. There can be additional penalties and interest due, if your trustees have failed to complete tax returns or reporting obligations which may be required at least once every 10 years
Trustee Issues: difficulties can arise if trustees are added without your knowledge, which is a position some people have found themselves in
Law Firm Closures: significant complications can stem from the closure or bankruptcy of the law firm managing your trust
Lack of Registration: if a trust hasn’t been properly registered, it may be deemed non-existent legally which means your assets aren’t protected
What should I do if I have concerns about my Asset Protection Trust?
If you have concerns about your Asset Protection Trust, it is important that you seek professional advice as soon as possible. There are additional steps you can take that a solicitor will be able to run through with you, including:
Legal Action: this is the most important step, particularly if you believe your trust was mis-sold or improperly managed. It will likely be necessary that you need to explore your legal options with an experienced professional to rectify the situation
Review the Trust: your solicitor can carefully review the terms and structure of your trust to understand its provisions and any potential issues that will require mitigating
Registration: your solicitor can also ensure that your trust is properly registered to avoid legal complications
Trustees and Documents: your solicitor can evaluate all aspects of your trustees to ensure that the trusts correctly align with both your interests and the trust's objectives. They can also help you track down trustees and other key documents
Our Wills, Trusts, Tax & Probate team have vast experience in helping clients to review their trusts and implement measures that are both compliant and align with their interests and wishes. If you would like to speak to the team about your personal circumstances, you can get in touch with them directly by calling 01752 827067 or emailing wills@nash.co.uk.
