One of our most popular services, the Family Asset Protection Trust could play a vital part of your estate planning.
WHAT IS A FAMILY ASSET PROTECTION TRUST?
It may help you to think of the trust as a ‘safety deposit box’ to keep your assets in. You can pass assets to a family trust established in your own name and for your own benefit whilst you are still living.
Placing your assets into a family trust should ensure that they pass to the people you want them to after your death, according to the terms of the Trust, or under the terms of your will. Inheritance due to any unreliable beneficiary can be protected by the trust and be passed to them at a more appropriate time.
The family trust is set up during your lifetime and you can put all your assets, including your home and savings up to the current inheritance tax threshold of £325,000 (per person).
Legally, ownership of the assets pass from you to you and another named person who then holds the property as ‘trustees’.
If you continue to be a trustee then you will remain in control of the asset. The Family Asset Protection Trust can help you and your family avoid some of the following problems:
1. Probate Fees
Probate costs are often much higher than expected. Some solicitors, banks and probate lawyers can charge around 4% for dealing with your assets after your death. There can also be some considerable time delays when dealing with your assets. You will not need to get probate for any assets within the trust.
2. Mental Incapacity:
One way of obtaining help with your finances, should you lose capacity, is to prepare a lasting power of attorney. A family trust will work in the same way without having the added costs of applying for registration with the court. A family asset trust will enable you to retain full control of assets with the help of other trustees – namely your close family members.
Subject to conditions, placing assets in a trust may mean that they are disregarded if you, or your children after your death, become bankrupt.
4. Claims on your estate:
Some people are concerned that a claim may be made on their estate on their death. For example, by estranged children, ex-spouses, distant relatives. All assets within the trust are safe from such claims.
5. Remarriage Problems:
Anyone who remarries may face the problem that their assets will go to their new spouse when they die and not to their own children. If you place your house and other assets into the trust, you will avoid this disinheritance.
6. Children with Problems:
If you have children with drink, drug, gambling, alcohol problems or who are just ‘spendthrifts’, you may find it beneficial to have some independent control over their inheritance.
7. Children’s Future Divorce:
Assets placed in the family trust are protected from loss if the worst comes to the worst and your children divorce in the future. Assets held within the trust are sheltered from any divorce proceedings.
Frequently asked questions:
1. Who are the trusts aimed at?
Anyone who is worried about the problems mentioned above. They are more beneficial for middle-income clients with houses worth £120,000 to £400,000 and other assets up to around £100,000. It is extremely beneficial for those people who wish to ensure their estate is passed to children and family.
2. Do I have to tell the Inland Revenue?
Whilst you still live in the home, tax matters should not have a great impact. Even after the house is sold, it should be straightforward. The family trust must be registered with the Inland Revenue and an annual tax return completed. This is straightforward where only a property is included as no ‘income’ is received, therefore no tax payable.
3. Do Family Trusts save Inheritance Tax?
No. These trusts are classed as ‘life interest’ in order to allow you to remain living in the property and get access to any monies held in trust. The asset will remain part of your estate for inheritance tax purposes. However, please note, that there may be some inheritance tax to pay if the assets are over the current tax threshold of £325,000. Please ask for further details if this is the situation.
4. What about Capital Gains Tax?
There should be no CGT payable when placing your property into the trust. You can claim Principal Private Residence provided you live in the property when it is sold. If you no longer live in the property then the sale may be subject to CGT.
5. Do I have to pay income tax?
There is no income tax chargeable when placing assets into the trust. Whilst you continue to live in the property, you will not need to pay rent for living there. However, if you rent the property out then you must pay tax on the rental income. If the house is sold and the money invested, tax must then be paid on any interest generated.
6. What about ‘pre owned asset tax’
In some situations when property remains occupied by a person who has disposed of it, a special charge to income tax applies. This tax does not apply with family trusts. It only applies in special circumstances where inheritance tax is trying to be saved. A family trust will not mitigate or reduce inheritance tax.
7. Who can be the trustees?
Some clients prefer to appoint their lawyers as Trustees. However, we usually recommend that you are a trustee and your spouse / partner and also your children. You can also control who are the trustees. If you do not like the ones you originally appoint, you can change them at any time.
8. What happens if I want to move?
If you wish to move after placing your property into the trust you can do so. The named trustees would simply sign the contract of sale and purchase. Any new property would remain part of the trust so there is no need to prepare a new trust. Any surplus cash is still protected by the trust and will be simply added to any other savings and investments (if any) in the Trust.
9. Can other assets apart from property go into the trust?
Yes. This all depends on your own personal needs. You may wish to retain full and unrestricted control over your money but wish to protect the value of your house. Your consultant can discuss this with you in more detail.
10. Is the trust guaranteed to work?
In respect of probate fees it is guaranteed. With regard to care fees, the Local Authority may challenge transfers into a trust. The LA must prove that you placed the property into trust to deliberately deprive yourself of the asset. Please see separate information on this.
11. How long does the trust last and how does it end?
The trust can last for a maximum period of 125 years. It will usually end on the death of you and your spouse. The property would then be sold and the proceeds split between the persons of your choice.
12. Is there a limit on what can be placed into the trust?
Yes. Anything over the inheritance tax threshold of £325,000 per person will attract tax at 20%. If your house is worth more than £325,000 then it is sensible to convey a smaller share of it into the trust.
13. Will I still need a lasting power of attorney?
It is advisable so that assets not placed into the trust can be dealt with if need be.
14. Do I have to keep any records?
It is sensible for you and the other trustees to keep records of receipts and payments relating to the trust. As a Trustee there is a responsibility and duty of care to administer and manage the trust. The trustees should ideally meet once a year to discuss the trust and decide on the practical issues such as repair and maintenance of the property.
15. Who insures the property?
If the property is placed into the trust then the building insurance should be in the name of the trustees. Contents insurance should remain in your own name.
16. Is it worth the fee?
Placing assets into a trust reduces potential costs in relation to administering your estate on your death. It potentially saves many tens of thousands of pounds that can be lost in the more vulnerable later years of life.
Estate Planning and Family Trusts
All effective planning starts with establishing what goals and purposes you are trying to achieve. Estate Planning is no different. What would you like to happen to your estate when you are no longer around? The estate-planning decisions that you make today will ripple on into the future – potentially for several generations to come.
Family Asset Protection Trusts are created to preserve assets – ordinarily for the family of the person or people that are creating the trust.
The Willwriting Partnership take great care to ensure that all aspects of creating such trusts are thorough, well documented and understandable. The use of legal terminology is unavoidable when creating such documents, but your consultant is available to answer any and all questions that you may have and to help you to understand the documents that make up the trust agreements.
We make use of specialist tax and trust solicitors to verify the workability of the trusts, so you can be assured of their effectiveness in the future. In addition to your being able to communicate with your consultant, you are also free to contact The Willwriting Partnership on the office number if you would like to speak with the people responsible for putting the draft documents together.