Asset Protection Trusts

Asset Protection Trusts are used to “ring fence” assets providing peace of mind that they are protected to provide for chosen beneficiaries.

Asset Protection Trusts are a lifetime settlement used to provide for a surviving spouse and future generations by protecting the assets from third party creditors.

The Trust works by transferring the legal ownership of the Trust asset to the Trustees for them to hold for the eventual enjoyment of the chosen beneficiaries.

Placing the assets in an APT protects them from sideways disinheritance and potential claims upon the divorce or bankruptcy of the beneficiary. Furthermore, probate fees can be mitigated or avoided altogether as the assets within the Trust are not treated as part of the estate for probate purposes. An APT also affords protection against potential claim under the Inheritance Family Provisions legislation following the death of the settlor.

The settlor can transfer assets into an APT whilst continuing to enjoy the use and benefit of the asset for the rest of their life. In the case of the family home, the settlor and their spouse can still retain a right to reside in the Trust property. The equity of a property which is subject to a mortgage can be placed within a Trust and secured by a restriction against Land Registry title.

In certain circumstances, an APT provides flexibility for the Trustees, at their discretion, to maintain one or more beneficiaries with income or capital depending on their individual needs.

TAXATION

The purpose of an APT is not to mitigate or avoid Inheritance Tax, but to protect and preserve assets. These Trusts do not remove the value of the Trust Asset from the settlor’s estate when calculating any liability to inheritance tax.

The principal residence exemption from Capital Gains Tax will continue to apply to a property held in Trust as long as the settlors continue to occupy it as their principal place of residence.

MEANS TESTING & ASSESSMENT

Clients often ask whether assets held in an APT are subject to means testing and assessment by third parties. It is a common concern that the family home may be sold should the settlor face bankruptcy, divorce, or local authority assessment, diminishing the Trust asset for future generations.

This is a complicated topic and involves consideration of the concept of deliberate deprivation. Any act carried out whereby assets are transferred, sold, or used up deliberately to diminish the settlor’s assets to avoid third party claims, can be considered to be an act of “deliberate deprivation”.

If assets are transferred into an APT whilst there are no third-party interests including the foreseeability of care, then the Trust assets may be excluded from means testing and assessment.

A full assessment of the settlor’s circumstances will be required to provide full and accurate advice in this respect.

For further information regarding Asset Protection Trusts, please contact us.