Transferring your assets to a protection trust may seem like a good option to reduce Inheritance Tax or minimise care fees.
However, a recent report says that misleading claims have persuaded people to choose this route when it won’t help them.
Vulnerable people and especially older homeowners have suffered at the hands of unregulated providers selling ‘complex and often worthless’ schemes.
What is a trust?
A trust legally gives someone else control over cash, property or investments. It allows them to look after assets on behalf of a third person. For example, you might put capital into a trust for your children.
There are two important things to know about trusts:
Trustees own the assets in the trust and must manage the trust responsibly. Trustees can buy, sell and invest property in the same way you can dispose of your own property.
A beneficiary is the person the trust is set up for. The assets in the trust are for their benefit.
Misleading claims for asset protection trusts
Unsuitable asset protection trusts, sometimes known as asset preservation, family protection or flexible trusts can cost thousands to set up. People receive targeted calls from providers claiming they can help families reduce care fees or inheritance tax liabilities. The approach is aggressive, and people often sign documents they don’t fully understand which won’t protect them. Instead, they can face unintended legal and tax issues which could cause lasting financial and legal problems.
Providers often claim they offer smart planning tools but don’t explain the possible risks. Although these trusts are expensive, the providers often use standardised documents rather than bespoke advice, tailored to each client’s circumstances.
The report says almost nine out of 10 of the cases identified involved unregulated providers. Two-thirds operate without any regulatory oversight. Most of the people affected are older homeowners who fully own their property or have significant equity. In many cases the providers appoint themselves as trustees, often without their client’s full knowledge or consent. Many families have suffered financial loss and experienced distress or conflict as a result.
How to make informed asset protection choices
There are some common aspects in cases of mis-selling to look out for:
pressurised sales tactics and unwillingness to answer questions
advisors who aren’t qualified or accountable to a professional body
unclear explanations, documentation and fee information
failure to explain risks, alternatives and limitations of trusts and future tax consequences
unsuitable use of trusts instead of regulated advice
providers appointing themselves as trustees
absence of informed consent, clear understanding, or independent legal checks.
Rather than responding to sales calls, independently look for regulated professionals if you would like to know more. They will clearly explain your options and the possible benefits and risks including the roles and responsibilities of trustees. If you decide to proceed, you’ll know what it will cost and how it will work for you.
Please give me a call if you would like to discuss options to protect your assets for your loved ones.
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