Asset Protection Trusts In Wills
What is it?
An Asset Protection Trust (also called a Family Protection Trust) is a method designed to ring-fence assets (usually your family home) from second marriage succession issues, care fees liability or creditors.
How it works
Your Will can provide that a half share of the family home of the first spouse to die passes into the Trust. This preserves a half share of the family home to ultimately pass to beneficiaries determined by the first spouse whilst providing for a spouse from a second marriage to occupy the property for their lifetime or to protect the capital from being used in the payment of care fees.
On the death, or remarriage, of the second spouse, the half share of the house is transferred (or the sale proceeds paid) to the named beneficiaries, who are usually the children.
Who should consider it?
Couples who may have children from a previous relationship who wish to provide for their new spouse but protect the capital for their children, or anyone who is concerned that they may need care in the future and/or wish to preserve at least a half value of the family home for their children or other beneficiaries and out of assessment for care fees.
Why not gift the family home during my lifetime?
If you wish to gift your family home during your lifetime to your children, for example, there are a number of issues that can arise, notably:
•If you gift the family home to your child with the intention to avoid care home fees, the Local Authority can challenge the gift as a “deliberate deprivation of assets”. This could result in the value of the family home being included in the financial assessment for care, even though you no longer own the property.
•If you gift the family home to your child, but continue to live in the property, for inheritance tax purposes, this could be detrimental. The gift could fall foul of the gift with reservation of benefit rules. These can lead to potentially double tax being paid in that the value of the home could be treated as if it is still owned for Inheritance Tax purposes but your children being taxed on the gains on the property held by them from a Capital Gains tax perspective.
•Other issues include the death, divorce or bankruptcy of the recipient of the gift during the lifetime of the donor as this can affect the donor’s ability to continue to occupy the property under any informal agreement between parent and child.
Each client’s needs are different and therefore tailored advice should be sort to ensure that you are advised of the most appropriate solution to your specific needs. If you are concerned about second marriage issues, care fees planning and wish to protect assets for your family, please speak to one of our qualified lawyers based at any of our offices in Canary Wharf, Canterbury, Maidstone and Tenterden to discuss the options available.