Products claiming to protect assets from care fees are sometimes too good to be true.
Most people are responsible for the cost of their care if their assets exceed £23,250 (although the home may sometimes be disregarded). Due to worries about the cost of care, I’m often asked how to protect assets in order to leave a healthy inheritance.
Often, clients want advice on locally advertised ‘wealth preservation trusts’ or ‘property protection trusts’. Marketed under a range of names, they typically cost £2,000-£8,000. Usually, the trusts are set up to hold the family home, claiming to reduce inheritance tax (‘IHT’) and protect assets from care fees. These arrangements are troubling though because, in my experience, they are often wholly inappropriate, especially now that the Ministry of Justice has scrapped the planned probate fee rise.
It’s rarely a good idea to give your property away, even to a trust, as it can leave you without full control of the property and difficulty in arranging future finance.
Most trusts I’ve seen were sold to save IHT, even when the client had no IHT problem. Broadly, spouses or civil partners can, between them, give up £650,000 tax-free, and a further £300,000 if their main residence passes to direct lineal descendants. In nearly all trust cases I’ve seen, these exemptions meant that no IHT was payable anyway.
The other (misleading) selling point of these trusts is that they will ‘protect the home from care fees’.
A ‘Deliberate Deprivation of Assets’ is where a person intentionally diminishes their wealth to accelerate contributions by a local authority towards the cost of care. Wherever possible, local authorities try to use such an argument to refuse to make payments.
A local authority’s case is much easier to prove as a person ages, where there is a relevant diagnosis or if the scheme itself is advertised to ‘save care fees’! In addition, one can’t rely on an IHT planning argument if there isn’t an IHT problem in the first place.
As a result, unwitting clients can pay thousands for an unsuitable scheme, provided by an unregulated company, often with insufficient insurance. As such, there is little recourse if things go wrong.
There are a number of ways to limit care fees, including simply having the right type of will. Such wills cost a fraction of the price of these trusts and you won’t be parting with your home. So please, before you commit to a lifetime trust, do some research and decide if it’s right for you.
To discuss this further, please get in touch with me on 07866 547366 or firstname.lastname@example.org.