Whats is it for
Family Protection Trusts are now advertised on the basis that they will save property – real estate, cash, works of art or other assets (‘property’) from being sold to pay for residential care-home fees. There is no guarantee that they will, but many elderly people when faced with the possibility of going into care, are easily persuaded to spend up to £4,000 for these Family Trusts in the hope that they will be able to leave their estates, undiminished by several years of care charges, to their children or grandchildren.
The Department of Health guide ‘Charging for Residential Accommodation’ (CRAG) states that transferring an asset out of your name whenever you do it with the stated intention of putting it beyond the reach of the Local Authority and the Pension Service, those agencies will almost certainly may seek to overturn the disposition, if necessary using the bankruptcy provisions. When assessing eligibility for financial assistance they WILL look for evidence of deliberate deprivation of property.
- Putting money into a trust
- Transferring your house to someone else.
- Substantial extravagance such as expensive holidays
- Selling an asset at less than its true value.
But there are good reasons for divesting yourself of some property (usually your home) whilst you are still alive. This can be outright transfer, which under normal circumstances is inadvisable, or putting the property into a discretionary trust. The latter option is better, as you will retain some control over that property and, where you do not have inheritance tax issues, you and your spouse can be beneficiaries.
With an outright gift the beneficiary (e.g., a child or grandchild) may be or become insolvent, go through a divorce and lose all or some of the gift in a financial settlement. If he dies the gift could pass to a person you may not wish to enrich; the asset could be used to finance drug and alcohol addiction; if the recipient is on benefits, he may lose that income.
With a discretionary trust, no beneficiary has any rights over the trust property except those afforded him by the trustees, so the benefit will not be lost as above. You as a trustee will retain control of the assets so ensuring that the benefit will not be squandered. On your death, the remaining trustees will have instructions via your Letter of Wishes to deal with the trust fund in a particular way, either by bringing the trust to an end or allowing it to continue as set out in the Discretionary Settlement document.
The pecuniary advantages of setting up a trust now are that you will save probate fees on a substantial portion of your estate (eg) your home. A property worth say, £200,000 with a probate fee of (average) 3.5% plus VAT at 20% will amount to nearly £8,500. In addition, there will be no delays in dealing with the real estate on your death as the surviving trustees can sign all the paperwork. There are many sound reasons for the establishment of the trust, and you (or anybody else) can at any time add more assets or cash so further reducing your probate expenses.
The Law Society states that one of the possible benefits of transferring the property into a trust, may be ‘avoiding the need to sell the home to pay for charges such as residential care or nursing fees thus securing the family’s inheritance’. If at the time you set up the trust you are in good health, and there is at that time no question of a move into long-term care, transferred property may be discounted in the means-testing. An example will be, where you set up the trust a good many years before your health deteriorates, and your principal reasons for the transfer are as set out in the paragraphs above. But such a disposition cannot be with the sole or principal reason of avoiding care-home fees.
The EAW has investigated this issue of trusts and care-home fees; we have referred to inter alia, CRAG, the Devon and Somerset County Councils, Cheltenham and Reading Borough Councils, AgeUK and the Law Society (Advice for Clients Wishing to Gift Property). Only about 7% of people 75 to 85 need long-term care. Trust or no trust ? The decision is yours.
This is the EAW’s definitive response to the question of care-home fees and gifting of assets. No other representations oral or written except in writing by the EAW Management shall supersede these notes or otherwise have effect.
For more information on our unique asset protection services:- Asset Trusts, Family Trusts, Property Protection Trusts, Discretionary Trusts.
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