What Is Asset Protection and How Can It Protect Your Family?

What is Asset Protection and how can it protect your family?

More and more people are looking for ways to manage their financial estate. This ensures that they protect significant assets such as their home both during their lifetime, and to maximise the inheritance left for the next generation following their death.

An Asset Protection Trust is a key option to consider, safeguarding the family home for the surviving spouse in the later life stages, and for the benefit of children, grandchildren, and wider family when inheritance is passed on.

Managing financial assets

Asset protection is an important part of estates planning. It helps to protect key investments such as your home while you are alive and ensures that your loved ones receive what they are entitled to following your death.

It can provide you with peace of mind knowing that the investments and property you have worked hard to acquire are safe.

What Is Asset Protection?

Asset Protection Trusts safeguard your property and wealth from unforeseen future circumstances such as a spouse moving into a residential care home.

In these already distressing situations, knowing that the remaining spouse can stay in the family home until their death provides invaluable peace of mind.

Asset Protection Trusts are a key aspect of estates planning also protecting wider wealth for future generations. This means that your loved ones inherit as much of your remaining estate as possible.

Selecting trustees

Selecting trustees is a crucial part of the trust. Settlors, those who establish the trust, can either choose trustees themselves, or seek guidance from financial advisors or specialist solicitors.

The trustees are responsible for managing and safeguarding the assets. This would be in accordance with the trust deed’s outlined guidelines.

Creditors and claimants

By placing assets such as real estate, investments, and other personal property into the trust, individuals and corporations protect them, and keep them out of the reach of creditors or other claimants.

This means precious items won’t be lost over time and long-term ownership can be secured.

Asset protection planning

Asset protection allows you to manage your estate and ensure that your assets are distributed according to your wishes after your death.

It involves setting up an Asset Protection Trust during your lifetime, with the assets held in the trust being swiftly distributed to beneficiaries upon your death.

This encompasses elements of both Life Interest Trusts and Life Interest Trust Wills, as the trust transfers assets as specified in your will.

According to the UK Care Guide “Increasing numbers of people are looking for new ways to manage their estate so they have money left to give to their children. Therefore, protecting family assets is one of the most important things you can do in later life. One option is an Asset Protection Trust.”

Asset Protection Trusts

Asset Protection Trusts offer a comprehensive approach to estate planning for certain assets. They also provide security and a clear way to distribute your assets.

How Does Asset Protection Work?

A trust involves dividing the legal ownership and benefits of an asset such as property. The trustees hold the legal ownership of personal property, while the beneficiaries receive the benefits.

By transferring your assets into this trust during your lifetime, they no longer form part of your estate and this form of transfer of ownership continues after your death.

Trust creator

Asset Protection Trusts, also known as Life Interest Trusts, serve the purpose of the person creating them.

As a creditor of the trust creator, you can benefit from the lifetime trust while complying with local authority regulations regarding capital deprivation.

Tell me some of the ways I can protect my family’s assets

Ensuring the protection of family, business entities and personal assets, is important for the future prosperity and security of your loved ones. There are several key aspects to consider in order to safeguard your financial well-being and minimise any potential risks:

Safeguarding through Asset Protection Trusts: Establishing trusts safeguards assets from unexpected costs or changes.
Smart Savings and Investments: Develop effective retirement plans and make wise investment decisions to protect family assets.
Ensure Adequate Insurance Coverage: Obtain sufficient coverage for unforeseen events like illness or death of yourself or another family member.
Minimise Inheritance Tax: Proper estate planning mitigates the impact of inheritance tax, ensuring assets reach intended beneficiaries.
Create a Comprehensive Will: Set up a clear and legally binding will to distribute your estate according to your wishes.

Long term financial stability

By carefully considering these aspects and implementing a solid plan, you can provide your family with long-term financial stability and peace of mind, even during times of uncertainty or sudden changes in circumstances.

Why should I set up an Asset Protection Trust?

According to a recent poll conducted by Ipsos MORI for the HMRC, the main reasons that settlors decide to set up trusts fall into four categories:

Keeping assets safe so that events such as a divorce, or poor decision making or management by the beneficiary, do not have a financial impact
Protection from taxes and other costs: an Asset Protection Trust can help keep tax, such as Inheritance Tax (IHT), liabilities to a minimum. It also provides protection in circumstances when one spouse has to move to a residential care home and the value of the property is taken into consideration by the local authority in order to calculate the individual’s contribution
Control over an estate: having a trust in place, drafted by a specialist solicitor, secures assets for the future intended beneficiaries while the individual retains control over it while they are alive
Flexibility: a trust provides the flexibility needed should a family’s circumstances change, for example, if a spouse has to move into a residential care home in the future

Potential erosion of the estate

When it comes to the distribution of your assets after your passing, it is crucial to consider the potential erosion of your family’s wealth.

To ensure that your loved ones receive the inheritance that you wish them to have, it is essential to be aware of the following factors:

The potential for family members and any business associates to contest your will.
The potential use of your spouse’s own income and assets to pay off debts in the event of their bankruptcy.
Assets being passed to in-laws instead of your children and grandchildren, especially following a divorce.
The assessment of long-term care fees from your spouse’s total assets, including any inheritance, if they require residential care home placement
The risk of your spouse remarrying resulting in the assets inherited from you being passed on to their new spouse, and potentially, also their children rather than your own.

Measures for asset protection planning

To protect your assets from these potential threats, it is crucial to implement the appropriate measures for asset and liability protection with the guidance of a specialist solicitor.

These safeguards can ensure that your wealth distribution plans remain intact, and your loved ones receive the inheritance you intend for them.

What sort of assets can I put in an Asset Protection Trust?

Property, or a share of a jointly owned house, is the most common asset in this type of trust.

Assets with a value under £14,250 are both exempt and not considered for means-testing, making them unsuitable for inclusion.

However, be careful when including assets subject to Capital Gains Tax, or transferring assets that exceed the Nil Rate Band, into the trust as this may result in lifetime inheritance tax charges on the trust property.

Seek advice from a solicitor

To navigate the complexities of asset protection and the tax implications of family trusts, seeking advice from asset protection solicitors, such as the professionals at Best Solicitors, is strongly recommended.

Their expertise will help to guide you through the process and help you better understand the impact and implications.

Can an Asset Protection Trust help protect me from care home fees?

When assets are held in a trust, they are kept separate from the surviving spouse’s assets.

This means that during the calculation of long-term care fees by a local authority, the assets in the trust should not be taken into consideration.

As a result, the surviving partner can remain in the home without the worry that the property would need to be sold in order to pay substantial care home fees.

Local Authorities and care home fees

It is important to note that establishing a trust solely to evade local authority care fees, also known as “deliberate deprivation of assets,” is not allowed by law.

If the local authority suspects that it was reasonably foreseeable that long-term care would be needed before the trust was created (e.g., due to the deteriorating health of either you or your partner), they have discretionary powers regarding the treatment of the trust.

These powers may include accessing the trust assets and evaluating their value. Consequently, there is a possibility that the house may need to be sold in order to contribute towards significant care home fees.

It is crucial to navigate the establishment and treatment of a trust carefully to ensure compliance with regulations and to avoid potential issues with your local authority.

Solicitor advice is key

While some people claim it is possible to set up an Asset Protection Trust without a solicitor, there are several key benefits to using their expertise:

Specialised knowledge: Solicitors specialising in trusts and estates have the knowledge and experience needed to create an Asset Protection Trust that precisely matches your needs and goals.
Customisation: With a solicitor’s help, you can tailor the trust to your unique This ensures that it offers maximum protection for the assets owned.
Legal compliance: A solicitor can ensure that the trust is established in full compliance with all relevant laws and regulations.
Peace of mind: By collaborating with a solicitor, you can rest assured that your Asset Protection Trust is legally sound and provides the protection required.

Contact us today to protect your assets

Setting up an Asset Protection Trust can be complex. Our empathetic team of experts will explain the process in jargon free terms, giving you peace of mind now, and for the future.

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