It has been brought to my attention that at a recent presentation to members of the Society, an attack was made on asset protection trusts.
This is not unusual, but what is usual is that the attack has come from someone without any legal qualifications and more particularly without any qualification in the law of trusts. Trusts are currently enjoying their 900th year in history because trusts were used in the early part of the 11th century to protect the assets of knights who went off to the Crusades (and also to by-pass the law preventing testamentary freedom).
The right of a person to protect their assets was recognised by the Courts of Chancery from about 1400 onwards and by the King before that. Today trusts have multiple uses and are used by Insurance companies issuing bonds, by pension trustees and a whole host of other major institutions as well as being in use to protect assets all over the world.
Can trusts be used to protect the family home?
The family home is the most valuable asset of most families. Often it has been purchased years ago by way of a mortgage, the mortgage has been paid off and the purchasers have used thousands of pounds in earned income to achieve a property which is mortgage-free. Many people wish to pass their valuable asset on to blood line but at the same time they wish to protect a surviving spouse.
A number of issues confront them:
Dementia appears to be the scourge of modern society. Worldwide 50 million people suffer from dementia and this figure will double every 20 years. By 2050 more than 2 million people in the UK will suffer from dementia. Dementia means loss of capacity, loss of the ability to make decisions and loss of ability to plan ahead. However, it does not mean that the person suffering from dementia has to go into residential care. Very often they receive care at home.
People in relationships are alert or are being made alert to the problem. A surviving spouse left with assets from the marriage who has dementia cannot take decisions, sign a LPA or a Will or any other document. The family home is at risk in such a situation.
Other forms of incapacity: an ageing population suffers from other problems such as stroke, serious forms of illness, etc which can cause decision-making to be a problem or even impossible. Now is the time to confront these issues and decide how to tackle them for the future comfort and safety of the survivor.
Bereaved people are vulnerable. This has been judicially recognised. They are at the mercy of manipulative children, grandchildren, friends, remoter relatives and opportunists who may see them as easy prey.
Not all estate planning can be done via a Will. Often decisions can be taken now which will protect the asset but allow the person to enjoy it, such is the peculiar nature of English law or rather the law of equity! Planning now can enable generation skipping where the children are well-off and do not need the asset.
A Will is a dead document until the testator dies. Often it was made years before and fails to meet changed circumstances. In addition, Wills are the subject of multiple challenges.
Inability to handle finances and property:
Sometimes a person may not handle finances or property adequately, or they may be reckless with money.
There are a number of other reasons to consider lifetime asset protection.
Trusts are not a solution to all problems. There are taxation issues surrounding trusts and they are limited in use as a result. However, there are advantages: they are a lifetime instrument made to come into effect now. Their flexible nature enables changes to be made easily and often without a great deal of formality. A trustee who loses capacity can be removed. Very few are open to capacity challenges. The re-marriage or cohabitation of a surviving spouse will not usually put family assets at risk and they are also safeguards in the vulnerability situations mentioned above.
Undue influence by a child or a third party will not affect assets in a trust and the trustees are fiduciaries and have to act according to very high standards imposed by the law.
In many situations, trusts have been mis-used in an attempt to allow the donor of the asset to avoid the asset being used for care home fee assessment.
Many advertisements demonstrate the usefulness of trusts to avoid care home fees.
Statements have been made that all trusts are redundant and local authorities will now regard them as an attempt at deliberate deprivation to avoid care home fee assessment. This is not accurate as I will demonstrate below:
The Care Act 2014:
Recognises the rights of a person to dispose of their assets as they wish. If it were otherwise the legislation would have said that local authorities have a statutory right to declare all asset disposal is a deliberate deprivation and disregard it.
This is not the case, however: the Act contains very relevant guidelines and disregards: for example, a married couple dispose of their family home into a trust: one goes into residential care. Provided the other continues to occupy the property then the home will not be taken into account for care home fee assessment purposes.
Consequently, the more likely situation for a local authority challenge will come when a single person disposes of their assets into a trust.