Don't Trust Trusts

The above bold statement was published in a Radio Times article. But is there still a place for trusts? The short answer is yes but before I discuss this, why did the Radio Times article make the claim that you should not trust trusts?

The title of the Radio Times article unfortunately does not make clear that the type of trust they are referring to is one solely used for avoidance of care fees. In this scenario someone will, during their lifetime, place their property into a trust whilst giving themselves a right to live in the property. As the person has disposed of the property, the Local Authority may bring a claim that there has been a deprivation of assets to avoid care fees. If the Local Authority can prove this, the property will still be taken into account when valuing the assets a person has to fund care. For this reason, many legal professionals do not advise these trusts are created anymore.

So how can trusts help you?

Trusts can be a useful tool when drawing up your Will. If you have concerns about protecting assets, you can create a Life Interest Trust in your Will. These types of trust are useful for married couples and will ensure that the spouse is provided for the remainder of their life whilst ensuring that when the spouse dies, the assets pass to the desired beneficiaries. Let’s look at how this works in practice:

When the first spouse dies, they will leave their estate to the Life Interest Trust. The trust will state that the spouse will benefit from the assets during their lifetime but on their death, the assets will pass to their desired beneficiary. As the spouse did not receive the assets outright i.e. as they only can benefit from them rather than own them, if they later need care, the first spouse’s assets are protected. This can also be a very useful tool for couples in second marriages where they have children from a previous marriage. In this scenario, you can ensure your children will still inherit from your estate whilst ensuring your new spouse is protected.

If you are unmarried, then Life Interest Trusts are not usually advisable due to potential Inheritance Tax implications. Instead, you can add a Discretionary Trust in your Will. This too can protect assets from care but in addition, may also be useful for Inheritance Tax planning.

So, what can you take from the Radio Times article?

When considering your affairs, you should only take advice from a reputable firm of solicitors. You should not instruct companies who make bold promises about the avoidance of care fees and tax.

Abigail Doust is a senior lawyer and STEP trust and estate practitioner in the Wills and Estate Administration team. To speak to Abigail or another member of the team, contact: 01689 887887.