Asset Protection Trusts

The Problem

What we are talking about here is care home fees.

Residential care is expensive.  Even if you have no special needs, fees of £1,000 a week are common in the South East.  At some £50,000 per year, this can run through your capital very fast.

Many people feel this is unfair, and that they should be able hold onto their capital and leave it to their children.

A number of companies have sprung up to cater to these feelings by offering what they claim to be a way to get someone else to pay instead, so that all your capital is not drained away in paying care fees.

The Rules

The first thing to say is that, unless you are one of the very small number of people who qualifies for NHS Continuing Care, no-one is going to pay for your care.  The most that may happen is that your local authority will pay a contribution towards your care fees.  Some care homes will accommodate you for what he local authority will pay, but many will not.

Having said that, the rules are that, if you need to go into residential care and you have assets worth more than £23,250, you are on your own.

You pick the care home, you enter into a contract with the care home, and you pay the fees.

If your assets fall below £23,250, then you can apply for some contribution from your local authority.  As your capital dwindles, the local authority contribution ramps up, until your capital falls to £16,000, when you become entitled to the maximum level of local authority contribution.

If you own your own home, the value of that home is included in the calculation of your capital, unless your spouse (or, in some circumstances, a relative or carer) is still living in it.

If you are on your own, this will usually mean that your home has to be sold and all but the last of your capital spent on care fees before you get any financial help at all.

The “Solution”

Some companies will offer to sell you a Trust, into which you transfer your assets while you are still alive.

Generically called asset protection Trusts, these schemes are sold under a number of names, usually including at least one of the terms Asset, Family, Protection or Preservation.

If you transfer your home and your savings to the Trust, those assets then belong to the Trust.  If you are one of the beneficiaries (the people who can benefit from the Trust), then the trustees (the people who run the Trust) can let you carry on living in the house and drawing income from the savings.

The big idea is that the house and the savings do not belong to you but to the Trust so, if you need to go into residential care, you can go to the local authority and say that you do not have any capital and claim the local authority contribution to your care home fees.

The Snag

The snag is the Deprivation of Capital Rule.

This is complicated but, basically, if the local authority believes that you knew about the limits on capital and that “a significant operative purpose” – not even the sole purpose, but just a significant purpose – of giving away your capital was to secure entitlement to benefit, the local authority can treat you as still owning the capital and throw out your claim.

It then becomes your responsibility to try to prove that there was a legitimate alternative motive for giving your assets to the Trust, and that engineering an entitlement to local authority benefit was not “a significant operative purpose” for what you have done.

If you have bought into a scheme, the publicly-advertised purpose of which is to get around the rules and secure your entitlement to benefit, proving that this was not “a significant operative purpose” may be, at the least, challenging.

The Reality

If you genuinely want to give money to your family, to help them buy houses, to improve their standard of living, or to reduce the Inheritance Tax charge on your death, there is nothing to stop you doing that.

If what you are giving away is surplus money, which you do not expect ever to need to spend, and which you do not rely on for income, you go ahead and give it away.

You should talk to a specialist solicitor before giving money away, because some ways of doing this are more clever and tax efficient than others and may even include giving money to a trust.

If you are a couple, there is no problem with you setting up your Wills so that, when one of you dies, some or all of your money goes into a Trust which can, perfectly legitimately, then shelter that money from a range of risks.

The Takeaway

If you are concerned about residential care charges, and especially if you are thinking about buying a Trust-based scheme which is advertised as preventing your capital from being drained away by residential care charges, talk to a specialist solicitor first.

Most solicitors know little or nothing about this specialist field.

Solicitors with specialist qualifications and experience in this field can be found through the Society of Trust and Estate Practitioners (STEP) and Solicitors for the Elderly.

The writer of the article, Michael Cutler, has been a STEP member for over 25 years.

At Colemans, we have extensive experience of helping clients with this complex area of law. For more information, please contact a member of our experienced and specialist Private Client team by calling us on 01628 631051 or email private.client@colemans.co.uk to arrange a meeting.

Categorised in: Wills, Probate and Trusts

This post was written by Colemans Solicitors LLP