Tax Policy Associates and Mis-sold Asset Protection Trusts

Asset protection trusts, also commonly promoted as “family protection trusts” or “protective property trusts”, typically involve an individual (the Settlor) placing assets, most commonly the family home, into trust for the benefit of their children and grandchildren (the Beneficiaries).

A trust is simply an arrangement whereby one or more individuals (the Trustees) hold assets (the Trust Fund) for the benefit of defined beneficiaries.  Trusts come in many forms, determined by the terms of the trust deed, which can impose conditions on how the trust fund is managed and distributed, including who may benefit and how. Common types of trust include Discretionary Trusts, Life Interest Trusts (also known as Interest in Possession Trusts), Disabled Person’s Trusts, and Bare Trusts. Trusts can be created during a person’s lifetime (as asset protection trusts typically are) or under the terms of a Will.

Asset protection trusts are often structured as Life Interest Trusts involving the family home, with promoters claiming that the Settlor can continue to occupy the property while removing it from their estate for the purposes of residential care fees.  Alternatively, they may be set up as Discretionary Trusts, with claims that they deliver Inheritance Tax savings by removing the property from the Settlor’s estate.

In both scenarios, the underlying legal arguments are often fundamentally flawed. As a result, these structures may fail to achieve the intended benefits and can instead create high additional costs and complications.

The companies promoting these arrangements typically operate in a highly sales-driven environment, with insufficient consideration given to the suitability of the structures for individual clients. There is also often a lack of clear advice regarding the potential disadvantages.  In many cases, the negative consequences only become apparent after the Settlor’s death, when the trusts must be administered or unwound.

These consequences can include the loss of valuable Inheritance Tax reliefs, such as the Residence Nil Rate Band, which can save a married couple up to £140,000 where available.  More concerningly, there have been instances of property title deeds being registered in the names of former directors of dissolved companies.

What to Do if You Already Have an Asset Protection Trust

For those who have already established an asset protection trust and are now questioning its suitability, we strongly recommend seeking independent legal advice.  This can help you understand the advantages and disadvantages of your current structure and explore options for unwinding or restructuring it where appropriate.

Trusts remain valuable planning tools when used correctly.  They can help families manage wealth, maintain control over assets, and, in appropriate circumstances, mitigate Inheritance Tax, allowing assets to grow outside of the Settlor’s estate.  However, such planning is typically most suitable for individuals with assets exceeding £1 million and an existing potential Inheritance Tax liability.

Importantly, creating a trust generally involves relinquishing personal access to the assets transferred into it.  Gifts into a trust should therefore be treated the same as outright gifts to another individual.  The benefit lies not in continued access, but in the ability to control how those assets are managed and distributed for the benefit of others.

How can we help

If you would like advice on whether a trust is appropriate for your circumstances, whether as part of a lifetime planning strategy or within your Will, please contact us for independent professional advice.  By working with a Solicitor, you can be confident that your adviser is qualified, regulated, and insured, ensuring your planning is robust and effective.