The Danger of Asset Protection Trusts sold to “protect your home from care fees”

The Danger of Asset Protection Trusts sold to “protect your home from care fees”

Back in 2018, I wrote a blog on this topic, having been contacted by several of my clients who had received door drop leaflets inviting them to attend a free seminar on “Protecting your home from Care Fees” – they were wanting to know if it was a scam …

The proposition

They had gone along to hear what it was all about, only to find the price for the ‘package’ was a somewhat jaw-dropping £3,300 each, or £4,200 for a couple (+ VAT)!  When they told me what they had been told, my heart sank and my blood began to boil!

The company running these particular seminars was marketing their product as a ‘sure fire way’ to avoid paying care fees in later life; enabling you to pass on your hard earned assets to your children rather than the Local Authority, by “putting you property in Trust while you are still living in it” – in many instances with ‘surplus’ lump sums of cash.

This is a very emotive subject – and something that is at the forefront of the minds of a great many of my own clients – those of a certain age, for whom the prospect of ending up in Care is a very real possibility in the not-too-distant future.

The reality

It won’t stop you losing assets

The problem is, the very reason they would look to purchase a product such as this, is the very reason it would be doomed to fail!  The reason being that; anything you do that is designed specifically to reduce the value of your estate for Local Authority means testing, will be deemed, quite legally, by the said Local Authority, to be a “deliberate deprivation of capital”, and as a result they will go ahead and seize the asset anyway!

It will increase your capital gains tax (CGT) liability

Not only that, but as a result of the property being owned by “Trustees”, the residents (the previous owners) would lose their right to ‘principal property relief’ for CGT purposes, in addition to which,  Trustees only qualify for 50% of an individual’s CGT allowance, so if the property was sold, possibly to downsize during their lifetime, the residents will get a very nasty tax shock!

It might increase your inheritance tax liability

Unfortunately CGT is not the only tax causing problems with these settlements.  As the Trusts holding the property are ‘Discretionary’ in nature, the assets in them need to be re-valued every 10 years for inheritance tax (IHT) purposes, and if the value of assets has increased to over the Trust’s own tax free allowance (the nil rate band) – currently £325k for a single Trust, £650k for a joint Trust – IHT is immediately payable at 6% on the amount over the nil rate band. Something the providers of these products appear not to have mentioned during their sales pitch!

Worse still, I have been contacted by clients who put their property into Trust that was over the joint £650k nil rate band at the outset. This is a ‘chargeable transfer’ for IHT purposes, which would have generated an immediate 20% IHT charge on anything over the £650k double nil rate band.  They were not notified of this by the provider at the time!

And it only gets worse

Sadly, since 2018, not only have many Local Authorities ‘reclaimed’ such supposedly “protected” properties, but worse still, many of the companies selling these schemes went out of business as the problems thrown up by the 10 year Trust anniversaries came home to roost, leaving their clients totally in limbo – and with HMRC breathing down their necks!

For those clients who have been badly stung by these schemes, read the disgraceful story of one such provider who left thousands of clients in the lurch – and vastly out of pocket. And a law firm that has now taken on the crusade of getting recompense for such clients – by having their Trusts overturned and their properties returned to them.

Better ways to protect your assets from Care fees

There are options available for joint owners of a property to protect the deceased’s half of the house from the survivor’s care fees after 1st death – I use them myself for my clients to achieve the ‘asset protection’ outcome.  Unfortunately many companies promoting their ‘Care fee protection’ products through seminars have totally misled their audience – which is at the very least a dereliction of their duty of care, if not actual fraud!

To find out how you can legally, safely and ethically protect your assets from unintended 3rd parties – and for substantially less than my clients were quoted at the seminar they attended – please contact or call 0845 519 7585, and I will be happy to assess your specific requirements and advise on the best solutions for you.

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