Asset Protection Trust is when you transfer assets such as property, or cash, into a trust during your lifetime.
What do Asset Protection Trusts prevent?
An Asset Protection Trust prevents against probate, which is the legal process of state administration when somebody has died. It can take up to a year; in some cases even longer. High street probate charges can be expensive, normally 3% of estate value. An Asset Protection Trust will ensure that any assets put into the trust are protected.
If you transfer assets into trusts to avoid care fees, this is deemed to be deliberate deprecation of assets and local authorities will overrule it. However, if assets have been transferred for other reasons, then generally assets in a trust are not considered for care fees.
Claims on the estate
Life is very difficult and many families have issues with children or step-children who they no longer have a relationship with. If you wish to disinherit a child by leaving them out of your will, then a child can contest the will and make a claim on the estate. (There are now many law firms who specialise in contested wills). Children have a legal right to their parent’s estate. If assets are left in trust, it’s far more difficult to contest, hence your assets will be passed to the beneficiaries that you intend.
If you die and your spouse or partner leaves your property or assets, and you re-marry, then not only do your assets but the assets of your diseased partner or spouse can be passed on to your new spouse. This means that blood line children can be disinherited. To give you peace of mind, and ensure that your children do inherit ate your share of your estate on your death, then an apt will help.
Children inheriting at the wrong time
On your death, if your beneficiaries are going through a divorce, bankruptcy or are on benefits, then assets could be lost or benefits could be stopped.
Cascading inheritance tax liability
When you leave your estate to your children, then the assets will form part of their estate, hence increasing on their deaths their liability for inheritance tax. Let’s assume you have a £300,000 estate, you are single and have 1 child and 1 grandchild. Your child also has a £300,000 estate. Potentially, the liability on this on your child’s death, would fall in the category of inheritance tax payable. The inheritance tax liability payable on the child’s death is £120,000, which could have been avoided. The grandchild has lost this.