Category Archives: Trusts

Home sweet home…

“We have heard about this new scheme as a really great way of saving inheritance tax/avoiding probate fees.”

This sounds brilliant! What kind of plan is this? We’re all ears.

“All we need to do, is simply transfer our home into the names of our children and place it into trust”.

Oh.

This is a conversation that we are having more and more frequently these days. Whilst we are confined to the terms of current legislation, there will always be practitioners and advisors (and otherwise….) looking for more creative ways of apparently saving you time and money. And naturally, there will always be an appetite from clients to find ways to make their lives easier and more tax efficient.

How we truly wish that there was such a simple answer.

We at legalmatters confess to not being fans of this sort of lifetime gifting of property (also known as ‘home protection plans’ or occasionally ‘asset protection trusts’).

It may well be that, despite the advice to the contrary, the client’s circumstances and desires are such that this is something that could work for them. That is ultimately their choice. However, we have a responsibility to explain the pitfalls of these arrangements to avoid any costly regrets later on.

So why would a client look to give their home away? Often the driver behind this is to protect their children’s interest in the property and to ensure that the property will always be there for them to inherit.

Awkward Conversations
One of the main issues to consider is what would happen if the client’s children had a difficulty in their own relationships (either with a partner or spouse – or with each other). Family relationship breakdowns can leave the client vulnerable. Although the trust would carve out an interest for the client, the more obvious point is that this creates a very difficult dynamic within the family if there were to be a relationship breakdown of any kind. If the children (or their other halves) had a problem with any kind of debt or were maybe even facing something as significant as bankruptcy or divorce, then again their best intentions may be compromised.

Essentially, on paper the property is no longer the client’s and now belongs in the hands of trustees i.e. their children who are then going through that financially difficult period in their lives – all of which creates stress for the family as a whole.

Care home fees
People often cite protection from care home fee assessment as the driver to put their property into this kind of trust. However, the whole care fees funding situation is under review and we are promised a new Care Act shortly. Although we don’t yet know the detail of this, there is likely to be a cap on the amount of fees that any individual has to pay for their own care. This again brings into question whether or not an individual should even consider this sort of trust –especially as their home will often represent the major financial asset of their estate.

Not to mention the possibility that the transfer of an asset to a trust would be classed by the local authority as ‘potential deprivation of assets’. If the local authority chooses to treat the transfer as that (and they are robust and aggressive in their approach) then the risk is that the gift of property into trust would be clawed back and the whole exercise would been worth nothing – and would have cost several thousand pounds to boot.

The main issue is the question of why you would choose to give away your main asset and not give yourself the chance of getting the highest possible standard of care. Local authority care homes are not particularly nice places to be and if we were advising our own parents, the last thing that we would be saying would be to suggest they do anything that prejudices their ability to afford the highest possible standard of care.

Families often say to us that if a parent (as the former co-owner of a property) needed to go into care then the children / beneficiaries of the trust would top up the care fees and ‘do the right thing’. There is of course no guarantee that that would happen and indeed children may not be able to contribute financially in that way even if they wanted to.

Independence
Being in control your own destiny is also important, no more so than when a spouse has passed away. The structure of the asset protection trust is such that the client wouldn’t own their own home anymore and this is a very difficult thing for people to comprehend; it has always been their property and now it is not.

If the aim is to support your children in financial terms then there are better ways of doing this for example via lifetime gifts. The gift of a property into one these ‘asset protection trusts’ does not work for inheritance Tax planning purposes.

Practicalities
On a practical level, other things that need addressing when people place property into trust like this are ‘where will the maintenance fund come from to cover insurance repairs?’ Who would pay for that? Is that you or is that the trustees? Do you want to be going cap in hand to your children?

Trusts are also living and breathing things and they need active management and this means two things; administrative hassle and legal fees! At the very least, HM Revenue & Customs would need to be notified that the beneficiaries of the trust are declaring the income on their own tax return.

Finally, what would happen if you wanted to get out of the arrangement? The trust terms are such that an individual could, but the trustees have to consider why the trust was created in the first place and they have to balance the needs of all beneficiaries. Even if an independent professional trustee was appointed, they would still need therefore to consider the other beneficiaries (i.e. the client’s children) and their own situations – which can lead to a conflict if their interests don’t match.

In our view, the risks and cons far outweigh the potential advantages of placing your property into one of these asset protection trusts.

For that reason, we would rather therefore recommend alternative routes such as properly structured Wills or carefully planned lifetime gifting.

For help with your clients wishes, call us on 01243 216900 or email us at info@legalmatters.co.uk.

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Winter is coming; be prepared. The legal lessons we can learn from Game of Thrones…

As Game of Thrones season 7 is fully underway, the shenanigans of the inhabitants of Westeros are attracting viewers in record breaking numbers. Whether or not this fictional romp of dragons, zombies and war is your cup of tea, once you remove the fantasy element, you are left with the very bread and butter of a private client practitioner’s workload; family relationships, wealth and death. A tenuous link? Perhaps, but undoubtedly these universal themes are very much at the heart of both worlds.

Admittedly, the level of death is a little more frequent and varied than the average probate practitioner’s workload. Her Majesty’s Courts and Tribunal Services have a difficult enough job processing paperwork without having entire family dynasties wiped out in one fell swoop (one can only imagine the Oath drafting…)

But on a serious note, the programme highlights that death will not always present itself in the chronological order of a family tree. Even despite the wealth of information in the public domain, we are still faced with clients who do not have a Will as they believe their wealth will automatically be inherited by their children on their death. The Intestacy Rules will only go so far in handing down your estate to your lineal descendants but, of course, there is so much more to a Will then simply enshrining this course of events.

Warring offspring? Dubious marriage choices? Unruly illegitimate children? All in a day’s work in the Seven Kingdoms yet in the real world, these issues are just as much cause for concern for our clients today. If you are worried about protecting the family wealth (however big or small) correct estate planning can prepare for such eventualities and ring fence funds for your intended recipients without the worry of funds falling into the wrong hands.

Indeed, so many of the show’s main conflict points could have been easily avoided and managed had the characters’ legal affairs been put in order.

Had the ‘Mad King’ been furnished with a fully registered Lasting Power of Attorney, then his appointed attorneys could have stepped it at the first sight of faltering capacity and a much cheerier (and less bloody) outcome could have been achieved by all.

A Lannister always pays their debts, and loans and gifts are indeed an excellent form of estate planning if done in the right way. A flexible family trust is a great way of allowing for loans and repayments to be made to and from the family pot of money. Running out of blood descendants? A trust also allows for the person setting it up (the ‘settlor’) to add friends or charities into the mix.

There is certainly a stark solution for making provision for ‘blended families’ (with children born from different relationships) in a straightforward manner, without having to lose your head.

Whatever your family situation, legalmatters will find the right solution for you to ensure that your death does not leave any nasty surprises for those left behind.

An appropriate, professionally prepared and properly executed Will can provide security for your family, during an already emotional time. There is a time and a place for drama and conflict, and your death shouldn’t be one of them. Make a Will, make your wishes clear, because goodness only knows transferring the ownership of a dragon is an administrative nightmare at the best of times!

As professionals, Accountants, Financial Advisers and Wealth Managers are often asked for advice which may be outside their area of specialism. As well as guiding you through the process, talking to an expert at legalmatters can help clear up any concerns you or your clients may have.
Working collaboratively and effectively with Accountants, Financial Advisers and Wealth Managers is a key aspect of the legal services that legalmatters provides. We believe that clients benefit greatly from combined financial and legal advice.

For more like this, Follow Us on LinkedIn, or if you have an immediate query, call us on 01243 216900 or email us at info@legalmatters.co.uk.