The Hidden Dangers of ‘Living Trusts’
As we grow older, long-term care costs can become a substantial financial concern for many families. Firstly, it is important to emphasise that the legitimate solutions offered by April King should not be confused with Living Trusts, which could be ignored by a Local Authority and sometimes cost several thousands of pounds. For this reason, we do not endorse or have ever offered Living Trusts. Our legitimate solutions are legally sound and affordable.
Deprivation of Assets
Transferring your property to your children or into an Asset Protection Trust, also now marketed as ‘Living Trusts’, with the aim of evading future care fees can be viewed as deliberate deprivation of assets.
This means you are purposefully reducing your wealth to avoid paying for care services. Local Authorities have the legal power to assess your finances when determining care funding eligibility. If they believe you have intentionally deprived yourself of assets, they can assess you as if you still own the asset when calculating care contributions. The Care Act 2014, Section 70 defines this as ‘Transfer of assets to avoid charges’. There is no fixed time limit for how far back local authorities can investigate property transactions.
As highlighted by Age UK in their article Asset-protection trusts ‘mis-sold’, many people have been mis-sold asset-protection trust schemes, often at a cost of up to £10,000, with misleading claims about protecting property from care fees. Unscrupulous advisers often suggest these schemes will safeguard a homeowner’s property if they go into care. However, such trusts are often ineffective, so professional advice from trusted and qualified legal specialists is essential.
Other potential examples of deliberate deprivation of assets include:
- Gifting a large sum of money, such as a significant financial gift to family or friends.
- Making sudden, excessive expenditures that are inconsistent with your usual spending habits.
- Converting assets into investment bonds with life insurance to shield them from means-tested assessments.
The difference between our April Wills® and Living Trusts is that our trusts are testamentary, meaning they are established upon death. By setting up the trust in this manner, you are not depriving yourself of an asset during your lifetime. This distinction ensures that our Wills provide a reliable and legally sound approach to safeguarding property for home-owning couples while offering security and provision for the surviving spouse/partner—without the risk of being accused of deliberate deprivation of assets.
The 7-Year Myth
A common misconception is that there is a 7-year time limit on the Local Authority’s ability to reverse the transfer of property. This is not accurate. The 7-year rule is actually applicable to inheritance tax and has no connection with care fees. In truth, there is no time limit on how far back a Local Authority can investigate and potentially undo a transfer of assets.
Financial and Relationship Troubles
Adding to the risks of transferring your property to your children, doing so also makes your primary asset more vulnerable as you relinquish control over it. If your child subsequently encounters financial or relationship difficulties, your home could be exposed to claims by their creditors or in a divorce settlement. This situation could result in a stranger ultimately owning your home, leaving you and your family in an even more precarious position. In addition, transferring your house to your children may lead to unexpected tax liabilities for them in the future.
Legitimate Solution
April King provides a legitimate solution for couples who want to safeguard their assets without resorting to deliberate deprivation. By crafting two bespoke April Wills®, you can ensure that your property is passed down to your children and grandchildren while still providing for your spouse or partner.
Upon the first partner’s passing, their share of the property is transferred to a trust. The surviving partner can continue residing in the property for the remainder of their life (or even move house if they wish to). At the same time, the trust ensures that the deceased’s share is protected for their beneficiaries, typically their children and then their grandchildren.
The primary difference between our April Wills® and Living Trusts is that our trusts are testamentary, meaning they are established upon death. By setting up the trust in this manner, you are not depriving yourself of an asset during your lifetime. This distinction ensures that our April Wills® provide a reliable and legally sound approach to safeguarding as much as possible for your loved ones without running the risk of being accused of deliberate deprivation of assets.
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Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, financial, or professional advice. No responsibility is accepted for any action taken or not taken based on the content of this article. Readers should seek appropriate professional advice tailored to their circumstances before making decisions. April King Legal will not be held liable for any loss or damage arising from reliance on this information.
