Beware the Unsuitable Asset Protection Trust

A recent study has found potentially widespread mis-selling of asset protection trusts, with unregulated providers targeting possibly vulnerable customers.

The report, published by the Association of Lifetime Lawyers (ALL), found an increasing number of consumers are being mis-sold asset protection schemes, leading to expensive complications further down the line on top of an initial cost of £3,000 - £5,000 to create one.

The majority of solicitors and law firms who took part in the survey encountered clients who had been mis-sold, and nearly one in four have noticed an increase in the last 12 months.

Concerningly, in nearly three in four (70%) cases, clients were older homeowners with significant equity, and one in five were people nearing or in retirement.

Although perfectly legitimate, deciding if it is applicable and beneficial in your unique circumstances is a significantly important part of the process.

What is an asset protection trust?

An asset protection trust is a legal arrangement that is often used to try and protect the family home from being sold to cover care home costs, reduce inheritance tax liabilities, and simplify the process of estate planning.

These are sold as an effective future planning strategy, however, according to ALL, are “typically based on pre-drafted, standardised documents rather than bespoke legal advice, tailored to the consumer’s personal circumstances.”

The issue with asset protection trusts

Although they can serve a purpose, some have been falsely promoted as a ‘one-size-fits-all’ solution. Legally complex, they can lead to unexpected tax liabilities, loss of control over a property, legal disputes, emotional distress, and difficulty exiting the trust.

There is also no guarantee that they can achieve the protections sold to clients.

On occasion, some consumers who created a Trust for tax planning purposes didn’t have a tax liability in the first place if they utilised available exemptions, reliefs, and allowances.

How to spot an unregulated asset protection trust

There are a number of potential red flags to watch out for when considering a provider to help you create an asset protection trust:

• Are they regulated by a legal or financial authority?
• Do they provide a clear, written explanation of risks and limitations?
• Do they explain the role of trustees in the process?
• Do they appoint themselves as trustees without explanation and without discussing other options?

Expert view

Josef Lythe, a solicitor in our Wills, Probate and Trust team, said: "We all too often see clients who have created these types of Trust and are surprised to hear they do not always offer the protections that they have been told the Trusts achieve.

"Whilst these types of Trust can be useful, it is always crucial to ensure the clients are aware of any limitations, financial and administrative implications and also that any trust created is bespoke to the client’s individual circumstances. We would always provide clients with initial advice on their personal position so they can make an informed decision of whether a Trust is appropriate thereafter."

Are you considering an asset protection trust?

If you are considering this as a next step or require any advice on an existing Trust, give our team a call to discuss the possibility. Our team is standing by to provide clarity on the benefits and risks, as well as discuss the range of options at your disposal to assist with future planning.

Book in a call today.

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