Pros and Cons of Asset Protection Trusts in the UK

An Asset Protection Trust (APT)  is seen by many to be an incredibly useful tool for an all-encompassing estate plan. However, some believe that an APT is a risky endeavour, but why? 

In this blog we will consider what an Asset Protection Trust is, why people utilise it, and how they work, before finally detailing a list of pros and cons of Asset Protection Trusts in the UK.

What is an Asset Protection Trust? 

An Asset Protection Trust can be a vital tool when it comes to the management of your estate and is a way of ensuring that, when the time is right, your assets are able to go to your loved ones. It is designed to protect your assets against any potential threat, which may include creditors, lawsuits, spouses, etc. 

Asset Protection Trusts are created prior to death by the party wishing to pass on the contents of their estate without fearing for its future. This type of trust is widely seen to be one of, if not the strongest form of protection you can have for your assets.  

Common reasons to take out this particular type of trust include: 

Protect Your Estate 

Planning ahead and creating an Asset Protection Trust is an ideal way of giving you peace of mind, safe in the knowledge that your beneficiaries will be able to access what you have left for them, without the fear of it being meddled with or deviated for other purposes. 

Your APT is an ironclad legal document, meaning that your beneficiaries will all receive what you have decreed to them upon your death. 

Eliminate the Possibility of Probate Costs  

Leaving your estate to the whims of the probate process will result in a highly expensive and time-consuming process for your beneficiaries. Putting your assets into a trust ensures that probate will not be required to determine where they go after death. 

Limit Taxes 

The future is nigh on impossible to predict. When it comes to the welfare of your beneficiaries, are you aware of what could happen should they get a divorce or have to declare bankruptcy? It is possible that anything left for them without ample protection could be lost to another party that you may not have had a relationship with. Leaving assets in a trust for them affords an additional degree of financial security against interested third parties. 

Insure Your Estate After Death 

An Asset Protection Trust can play a vital role in estate planning because it can act to ensure that your beneficiaries are not dealt a cruel hand when it comes to inheritance tax. 

How Does an Asset Protection Trusts Work? 

Asset Protection Trusts work because they are irrevocable. This means that the process of transferring an asset into the trust is both permanent and binding. Therefore, once you place an asset into your trust, the trust essentially owns the asset — meaning it cannot be taken by another party for any reason. 

Assets that can be placed into an Asset Protection Trust include: 

• Property 
• Capital above the £14,250 threshold
• High-value assets 
• Investments 

What are the Benefits of an Asset Protection Trust? 

The most obvious benefit of placing assets into this type of trust is to protect them from any potential creditors or lawsuits down the line. It’s likely that you aren’t expecting legal trouble or being pursued by creditors. However, it is beneficial to always plan for the worst case scenario wherever possible.

Other potential benefits of creating an Asset Protection Trust include: 

• Maintain Residence: You are able to continue to use any and all assets placed into the trust prior to death. This includes remaining to live in your home. 
• Avoid probate: APTs allow you to guarantee that your loved ones do not need to go through the long-winded, and expensive probate process to decide who gets what.
• Lower Care Fees: As long as the goal of the trust is not deprivation of assets, an APT can help you to minimise care home fees. 
• Tax Benefits: Choosing to utilise a trust can have some potential tax benefits if it is created correctly. Contact an expert to find out more. 
• Future-proof inheritance: Safeguard your beneficiaries’ inheritance against any negative situation. This includes if they eventually get a divorce or declare bankruptcy.
• Minimise Claims: The bulletproof nature of the trust will usually prevent any claims. 
• Minimise Benefits Complications: The way an APT is set up means that anything benefitted is unlikely to compromise the benefits status of a beneficiary.

What are the Cons of an Asset Protection Trust? 

The most common issues people have when it comes to an Asset Protection Trust boils down to the perceived lack of control. Essentially, when you place an asset into a trust, it is no longer controlled by you. This, despite you still maintaining ownership until death, makes some people uncomfortable. 

Beyond fears over lack of control, a majority of the major ‘disadvantages’ of an Asset Protection Trust stem from poorly thought out or ill-planned trusts. 

Other cons of an Asset Protection Trust might include getting on the wrong side of deliberate deprivation of assets. People sometimes see the headline that ‘an Asset Protection Trust can protect you against care home fees’ and rush in without due care and attention. 

When you are means tested prior to entering into a care home, the authorities in charge will assess your latest transactions. If you recently transferred your property — or large sums of money — into a trust, you may be accused of deprivation of assets . This will only undo the APT process and place your assets and property at risk. 

Additionally, a poorly executed or researched trust could lead to you falling foul of taxes such as Capital Gains, Land, Income, Stamp, and most commonly, Inheritance Tax.

Plan for the Future with Just Wills and Legal Services’ Trust Service

There comes a point in everybody’s life where they need to consider what would happen to their nearest and dearest after they are gone. If you can leave something behind for those you love, while also minimising potential stress, then it makes sense to do it while you can. 

When it comes to planning for the future, there truly is no time like the present. This preparation can allow you to create an airtight plan for your estate.

However, a lot of people consider the process of creating an Asset Protection Trust too complicated, choosing  instead to bury their heads in the sand and leave it for another day. Contacting an expert will help you to both eliminate the stress from the process, while also ensuring that your Asset Protection Trust covers as many bases as possible. 

The Just Wills and Legal Services team are experts in all things trusts. Our estate planning services are not just limited to APT’s, we can also offer an expert service to support you with your Family Trust or Property Protection Trust. We have been there and seen it all when it comes to this potentially complex estate planning tool. For more information on the impressive benefits an Asset Protection Trust can have for your loved ones, get in touch today