Asset Protection Trusts. Do they Work?
Age UK describes them as: “effectively a worthless piece of paper”.
Most of us are aware of the widespread concern over the increasing cost of care home fees, which range on average from over £500 a week for residential care, to over £1000 a week for nursing home care.
And so, some of us are, understandably asking
How can I protect my hard-earned assets and ensure there is something left for my children to inherit?
And
Should I put my property into an asset protection trust to avoid care home fees?
The idea of an Asset Protection Trust is to take your main asset, usually the family home and to transfer it to a trust so that you no longer own it. The theory is that if you do not own the property, it cannot be taken into account when assessing whether you should pay for some or all of your care costs.
At present in the UK when an individual begins to require residential or nursing care the responsible Local Authority will carry out a means test and those individuals with more than a certain level of assets (including the value of their home) will have to pay for the full cost of their care. Below this level, the Local Authority will contribute towards care costs and then when assets fall to the lower limit (currently £23.250), the Local Authority will take over paying the fees although even at this stage a person may in some circumstances still be asked to contribute to the costs of their care.
Therefore, the Asset Protection Trust can seem like a very sensible option.
However the Local Authority will consider the motive behind an individual’s decision to transfer their property into a trust and if they consider that the property was transferred into trust to avoid paying care fees, this will be classed as a ‘deprivation of assets‘ and in such circumstances the Local Authority has a wide range of powers, including treating the individual as if they still own the property and levying bills for care accordingly.
As Paul Dodsworth, in the IPW Journal March 2021 points out: “We all know there is almost certainly a wave of negligence claims and negative publicity coming in the future when people go into care and the local authority overcome the trust arrangement by simply ignoring it.”
Estate Planners actively promoting Asset Protection Trusts often claim that the transfer will not be deemed to be a deprivation of assets designed to avoid care home fees if at the time of making the transfer, there was no immediate need for care and no foreseeable need in the future. However the local authority will consider if there is any other reasonable explanation for making the transfer. To put it simply they will ask why is it being done, why go to the trouble and expense? It may be particularly difficult to convince a local authority that your motives are not to avoid care home fees if you continue to live in the property after transferring it to the trust.
Other estate planners will cite ‘avoiding probate fees’ as a possible motivation for the transfer to the trust but in most cases it will be unlikely that a Grant of Probate will not be required.
In the absence of a reasonable explanation for the transfer, it is likely the Local Authority will conclude that a deliberate deprivation of assets to avoid care fees has taken place.
STEP, the Society of Trusts and Estates Practitioners, notes: “Many qualified practitioners consider that such devices do not deliver what they promise, in that local authorities are entitled to disregard the trust when assessing the individual’s assets, under the deliberate deprivation of assets rules”.
Howard Turton the Regional Enforcement manager of the North East Trading Standards Association has warned: “Local authorities have a legal right to overturn any gifts into such trusts where they can prove that there has been a ‘deliberate deprivation of assets’. For this reason, customers who take out an Asset Protection Trust or similar could find themselves challenged by the local authority at a later date.”
Mr Turton also observes: “The potential limitations of such products are also not always conveyed to the homeowner.” and that brings me on to another area of concern. These trusts are still being advertised aggressively and often mis-sold. The Solicitors Regulation Authority have stated: “We are aware of the issue of mis-selling of asset protection trusts. If necessary, we will work with other regulators.”
Many of us will have heard of instances of unscrupulous practices, such as asset protection trusts sold to elderly and vulnerable clients living in park homes or cases such as that of the elderly gentleman with no family and a will leaving everything to charity, who was ‘persuaded’ to spend several thousand pounds on a trust that protected his property for benefit of who could say. He was potentially condemning himself to inferior care (when he had the means to make his final years much more comfortable) just to give a little more money to various charities, many of whom were in the business of making the lives of the elderly in care a little more comfortable.
Making sure we do not fall victim to mis-selling requires not just vigilance and research but also a change of thinking. There are many motives for seeking to protect our assets, most of us want to see our children and grandchildren financially secure but in all likelihood those children and grandchildren would willingly take responsibility for that financial security onto themselves if to do otherwise would compromise the quality of care we receive in our twilight years.
Also the ‘why should I pay for my care, when he isn’t paying for his’ attitude makes us easy prey for the high pressure salesmen. The ‘I’ve worked hard all my life, saved, acquired some assets, and they’re making me pay, but he did nothing, saved nothing and they’re paying for him; way of thinking leaves us open to the ministrations of the unscrupulous. Ask yourself why after working hard all your life to get ahead and enjoy high standards would you run the risk of receiving free substandard care at the end of life just because the bloke in the next bed is receiving free substandard care as well.
However it is possible to take legitimate steps to protect your share of the family wealth from care home fees. Briefly, these require that you sever your joint tenancy so that you and your spouse own your home as tenants in common. You then need to rewrite your Will leaving your share of the property to your chosen beneficiaries after your death but also leaving your partner a life interest in your share of the property. Should your partner subsequently need care, any care fees will be taken only from their half of the property (usually by way of a charge, rather than forcing a sale of the home) as your half of the home is safe because it has passed to the beneficiaries named in your will.
If you have already transferred your property to an Asset Protection Trust, The Office of Fair Trading advise that it may be possible to get redress under the Consumer Protection from Unfair Trading Regulations 2008, which prohibit unfair commercial practices. The relevant sections 3 – 5 which state that an unfair commercial practice is one that is misleading. Misleading commercial practices are ones that, in any way deceive or are likely to deceive the average consumer even if the information is factually correct and it causes or is likely to cause the average consumer to take a decision he/she would not have taken otherwise.
