Asset or Family Protection Trusts – too good to be true?

I recently attended a webinar on the pitfalls of Asset Protection Trusts and was struck by the number of participating solicitors who, like me, had direct experience of clients falling victim to the mis-selling which can take place with these products. The scale of the problem is huge, with recent newspaper articles quoting tens of thousands of people who have transferred their home and other assets into trusts of this nature.

The idea is simple enough – you transfer your home into a trust during your lifetime. The trust allows you to live in the property but the value is ‘protected’ within the trust.

These arrangements are often sold by unscrupulous salespeople who make false promises that they will protect the family home or other assets from care home fees, preying on the vulnerability of older people who are concerned about the rising cost of care and the impact this will have on the wealth which they can pass to their families on death.

They are often sold to people in their homes where they are perhaps more susceptible to pressurised sales tactics and, in many cases, the people selling them lack the legal expertise to properly advise clients on the legal and taxation consequences of transferring their home into a trust. Crucially, they often fail to explain the deliberate deprivation of assets rules that allow a local authority to challenge the arrangements should care be required in the future.

By the time advice is sought, in many cases, the home has already been transferred, usually at significant cost to the client; and control of the property is now by reference to professional trustees who are likely to charge further fees for their involvement. Depending on advice given at the time, consideration may not have been given to potential Inheritance tax charges which could have been payable when the trust was set up, the possible loss of allowances to the estate on death and the ongoing charges which can arise on a ten yearly basis. There are also regulatory requirements which may need to be considered.

The key message therefore is that if you are concerned that you may have been mis-sold such a scheme then take proper advice as soon as possible to review the arrangement, check that it meets with your requirements and ensure that you are fully aware of the implications. Depending on the way the trust was drafted, it may not be too late to wind up the trust, or at least change the trustees to bring it back under the control of family members. And if you are being sold such a scheme and are worried that it sounds too good to be true, trust your instincts – because it might well be.