Asset Protection Trusts – FAQs

Asset Protection Trust

Many clients are concerned about protecting their estate to ensure that all their assets will ultimately pass to their children or other chosen beneficiaries and cannot be eroded by any means either before or after their demise. The erosion could occur in many different ways. For example: if a spouse was to remarry in the future their assets and any inherited from a deceased spouse could pass to the new spouse rather than to the children of the family; there could also be post-death attempts to upset the terms of a Will by a disgruntled family member who is unhappy about the distribution of the deceased’s estate under the terms of their Will; or assets may pass to sons or daughters-in-law instead of blood relatives.

The use of a Trust structure for estate planning can solve all these problems and also give comfort to the clients who are concerned about the necessity to obtain a Grant of Probate following death and the cost and possible delay involved which can be avoided if a Trust is used.  Another consequence of using this trust for estate planning purpose is that assets held within the Trust can be protected from the impact of long term care fees in certain circumstances.

Long-Term Care

The legislation which governs long term care is the Community Care Act and Health and Social Care Act. These stipulate that if a person owns assets valued in excess of £23,250* and that person requires long term care, they will, in most circumstances, be required to make a 100% contribution towards the cost of their care from income and capital assets. If a person owns assets valued between £14,250 and £23,250* they are required to make a 100% contribution of income but only a partial contribution of capital, which equates to a £1 contribution for every £250 of capital owned over £14,250*. If a person owns assets valued at less than£14,250* they are not required to make any contribution from their capital, however they must contribute 100%of their income. *Figures correct at time of printing.  Income from all sources, including pensions, State benefits, any other income e.g. investment or rental income received or income as the beneficiary of a Trust will all be required to pay for long term care fees. 

An Asset Protection Trust (APT) is an effective piece of estate planning and a side effect will be that it will protect the capital value of your assets for your chosen beneficiaries unless it can be proved that at the time the APT was set up it was reasonably foreseeable you would enter long term care thus establishing a deliberate deprivation of capital.

This is because the legislation states a person must own chargeable assets in excess of £14,250. The assets within the APT will not be considered chargeable assets under the terms of the legislation. It is therefore advisable to place your savings as well as any house or property you may own within the APT structure, to ensure maximum protection.  However, it should be pointed out that any assets which involve a Capital gain (other than those for which relief is available e.g. your main residence or cash) may give rise to a chargeable disposal for Capital Gains Tax purposes so you should discuss this with us before placing these assets within the Trust Protection. *Figures correct at time of printing.

How the Trust Works

Throughout your lifetime you retain full benefit from all of the assets within the APT and as you and your representatives have the power to ‘’hire and fire’’ the trustees, you retain control in this way. It is crucial that you receive a benefit from the APT at all times. Whilst you are living in the property, the enjoyment of that property is your benefit. If you are not able to live in your own home, we must ensure  you still receive a benefit from the APT, therefore a decision is then made whether to sell the property or rent to tenants. In either case you must receive the income from the investment of the sale proceeds or the rental (after deduction of maintenance and management costs). Upon your death, assets within the APT can pass directly to the beneficiaries named in your Trust or alternatively in accordance with the terms of your Will.

Summary of Benefits

  • Probate will not be needed for the Assets in the Trust, which could save your family money in probate fees
  • Property can be passed on after your death without delay
  • Experienced solicitors to defend the Trust in the event of a local authority challenge
  • You control who inherits joint Assets in the event of the survivor of you remarrying
  • Assets can be dealt with by those you trust in the event of your incapacity
  • You retain control of your Assets until your death or incapacity
  • Avoid losing your home to pay Care Fee charges

Frequently Asked Questions

What is Asset Protection Trust (APT)?

The APT is basically a life interest trust for the person creating it, with a number of additional beneficiaries. During your lifetime you must benefit from the Trust assets unless you require the Trustees to make payments to other beneficiaries. However, because of the Local Authority capital deprivation regulations it is prudent for payments out of the Trust to be made only for your benefit as the Principal Beneficiary although in some circumstances some payments may be acceptable.  The capital value of assets within the Trust is not means tested and therefore protected while any income produced by the investment of that capital will be added to the Settlor’s other income and used to meet his or her expenses.

Who can set up APT?

Anyone at any age, whether married, civil partners or single, so long as they are mentally capable of doing so. To have the requisite mental capacity the person setting up the Trust (known as the Settlor) must understand the nature and effect of his or her actions and the value of his or her assets.

What type of assets can be placed within the APT?

Commonly people place their house (or their share in it if it is owned jointly with another) and savings within the Trust. Presently capital of £14,250 or under is disregarded for means testing in relation to Local Authority financial assessments, we usually recommend that any savings or other investments over that figure are placed within the Trust’s protection.  Some assets however may be disregarded and can be left outside the Trust.

Are there any assets which cause a problem if they are placed within an APT?

Care should be taken in relation to any asset with a built in capital gain where you cannot claim an exemption such as with your home by way of the principle private residence relief.  Since the Finance Act 2006 any transfer into a Trust with an unrelieved gain where the trust benefits the person creating it can cause a charge to Capital Gains Tax to arise on the transfer. Please discuss this with one of our solicitors at the outset.

Can other assets be added later?

Yes, although care needs to be taken to ensure if any asset is added later this does not constitute a deliberate deprivation of capital.

Is there any limit on the value of assets placed within an APT?

No but of you are placing assets valued in excess of your available Nil Rate Band within the Trust this would create an immediate charge to lifetime Inheritance Tax (20% of the value over the current Inheritance Tax nil rate band placed within the Trust).

When is the best time to set up the APT?

As soon as possible.

Local Authorities can retrospectively review the circumstances in which an APT was set up at any time. Clearly if the APT was set up at a time when the person was in good health, living independently and had no prospect or intention of long term care then there should be no problem. However, Local Authorities can review medical and other records and so any pre-existing medical condition or even comments made while in discussion with Local Authority social workers or carers could become relevant at a later date.

Can an APT be set up after a person enters care?

No. This would be a deliberate deprivation of capital.

What should I do next?

We are experienced in the preparation of all types of Asset Protection Trusts and would be pleased to act on your behalf in this or any other matter.

If you would like more information or you would like us to act on your behalf, please contact us on 0191 514 4323 (Sunderland) or 0191 511 8222 (Seaham).