What is an Asset Protection Trust?

The Asset Protection Trust (APT) is a lifetime trust, i.e. one set up during your lifetime rather than within your Will. The APT provides a means by which you can continue to use and enjoy your assets during your lifetime but on your deaththe assets in the trust will pass to your chosen beneficiaries.

WHY USE AN ASSET PROTECTION TRUST?

The APT is a simple, straight forward and cost-effective solution designed to help you protect your assets against a number of different risks and pass them on to beneficiaries in a controlled and efficient way via your chosen trustees. The trustees will have discretion as to how to distribute your assets but they will do this in accordance with guidance and instructions set out by you in a letter of wishes for them to follow so that they know your wishes.

WHY DO I NEED PROTECTION?

You have spent your lifetime building up your assets in order to provide for you and your family. You don't want these efforts wasted so there are risks worth considering protecting against:

FAMILY DISINHERITANCE - The most common cause of family disinheritance is when a widow or widowerremarries and inadvertently leaves their estate to their new spouse or their family. Although relatively rare the problem can have serious consequences for your family.

The APT can assist in this situation as any assets placed within it fall out with your estate, and they would be distributed according to the instructions laid out by you in the Trust, or at the discretion of your chosen trustees.

EXECUTRY COSTS – After your death, it will usually be necessary for the executors of your estate to undertake the Probate process in order to gather your assets, deal with any debts and then distribute your estate according to your wishes in your Will or under the laws of intestacy. The process involves an application to court which takes time and can be very costly. It can take anywhere from 6 months to well over a year to complete an estate administration, and average legal fees could be in the region of £6,000.

The APT can assist as any of the assets you have placed within it no longer form part of your estate and fall outside the executry process. The Trust is simply wound up and the assets transferred to your nominatedbeneficiaries without additional delays.

Please note however that a trust of this nature needs to be registered with HMRC via the Trust Registration Service and additional disbursements may apply if using a professional to facilitate this. This is not a service that APS offer. It is a trustee’s responsibility that will need to be fulfilled within 90 days of the trust being formed.  

INCAPACITY - If you were to lose your capabilities, your family could face significant problems trying to dealwith your assets during your lifetime. It is vital that you plan ahead and make the best possible provisions toprotect your assets from risks, for your family and their future.

Illness or accident can strike at any time and it may be necessary for a family member to step in to look afteryour affairs for you. Whilst a Power of Attorney may alleviate some of the issues faced in this regard (if you have one), your appointed Attorneys are restricted to the powers contained within the Power of Attorney documentand are ultimately responsible to the Office of the Public Guardian.

Unwelcome conflicts can arise in this situation. If you do not have a Power of Attorney in place, then a petitionto the Court has to be made in order to deal with your affairs which is both very costly and can take considerabletime.

The APT averts this issue as your trustees can continue manage the assets within the trust fund even if you losecapacity, providing that you are not appointed as a Trustee.

CHANGING CIRCUMSTANCES – It is not always possible to foresee everything that could happen or change in yours and your family’s future which can make it difficult to plan ahead for every eventuality.

The APT can be useful for any unforeseen circumstances as, whilst you can leave them guidance andinstructions as to your wishes and intentions, the trustees have the discretionary powers which means they have flexibility to adapt to changing circumstances where needed. They could also manage the trust fund for anydisabled or vulnerable beneficiaries in a flexible way so as to meet their ongoing needs.

CARE COSTS – Longer life expectancy these days means that there is a greater possibility of the need for long term care during those later years, and tighter Local Authority resources mean that free long term care can no longer be assumed so you may be required, to contribute towards the cost of that care. Although unlikely to be able to force you to sell your home, a local authority may alternatively impose a security over it meaning thatwhen sold in the future the local authority can claim back what is due to them from the proceeds of the sale.

It is a common misconception that protection against care costs can be achieved by simply transferring assets directly to children. Transfers of this nature can avert some risks, but not all, and more importantly, they also expose you to other risks – for example losing control of your assets, and the security of residence in yourhome.

The APT could result in removing assets from a care fees assessment provided you act when you are in good health and before there is any foreseeable need for care. Although there are no set time limits, the longer between the transfer to the APT and the need for long term care, the better, in order to ensure that the local authority will not be able to successfully argue that you deliberately deprived yourself of the assets in order to avoid care fees.