Specialist lawyers – protecting family wealth is about much more than reducing tax
Many people are concerned that assets they have worked hard to build could be lost through remarriage, divorce, financial difficulties, family disputes, poor decision-making by beneficiaries, or long-term care costs. Others want to ensure that money and property pass to children and grandchildren in a controlled and protected way. An asset protection trust can sometimes form part of a wider estate planning strategy designed to preserve wealth and protect future generations.
At Bonallack & Bishop, our solicitors regularly advise clients on Wills, trusts, inheritance tax planning and family wealth protection. We help individuals, couples, business owners and families consider whether an asset protection trust may be appropriate as part of their overall estate planning arrangements.
To speak to one of our specialist Trusts lawyers, please call FREEPHONE 0800 1404544 or one of our local office numbers [see below] for FREE initial phone advice
What Is an Asset Protection Trust?
An asset protection trust is a legal structure designed to help preserve and protect assets for beneficiaries while allowing those assets to be managed according to specific rules and objectives.
The term “asset protection trust” is not a single legal trust recognised by legislation. Instead, it is a broad description covering a variety of a variety of structures used for asset preservation and estate planning.
Depending on the circumstances, an asset protection trust may be used to:
- Protect assets for children.
- Protect assets after remarriage.
- Safeguard family wealth for future generations.
- Assist vulnerable beneficiaries.
- Help preserve business assets.
- Reduce the risk of inheritance disputes.
- Provide controlled inheritance arrangements.
- Support wider inheritance tax planning strategies.
Trusts are governed by a combination of legislation, case law and equitable principles that have developed over centuries.
A trust separates legal ownership from beneficial ownership. Trustees hold assets and manage them for the benefit of beneficiaries in accordance with the terms of the trust.
Why Consider an Asset Protection Trust?
Many people assume that once they have made a Will, their estate planning is complete. However, a Will only determines who inherits assets after death. It may not protect those assets once they have been inherited.
For example:
- A child may later divorce.
- A beneficiary may become bankrupt.
- A surviving spouse may remarry.
- A beneficiary may develop health problems.
- A beneficiary may become vulnerable to financial exploitation.
- Family circumstances may change significantly over time.
An appropriately structured trust can sometimes provide additional protection that a simple outright inheritance cannot.
Protecting Assets for Children
One of the most common reasons for establishing an asset protection trust is to protect assets intended for children.
Parents often want children to inherit family wealth but may not want them to receive substantial assets outright at a young age.
These kind of legal structures can allow trustees to:
- Control when capital is released.
- Make payments for education.
- Assist with housing.
- Provide financial support gradually.
- Protect assets from poor financial decisions.
For example, parents may decide that trustees should have discretion to provide funds when needed rather than transferring a substantial inheritance immediately.
This can provide flexibility while preserving long-term family wealth.
Protecting Inheritances from Divorce
A concern frequently raised by parents is whether a child’s inheritance could be lost in a future divorce.
While family courts have wide powers under the Matrimonial Causes Act 1973, assets held within properly structured trusts may sometimes receive greater protection than assets inherited outright.
No trust can guarantee that assets Will be excluded from divorce proceedings.
However, proper estate planning may help reduce risk and strengthen arguments that assets should remain outside a matrimonial settlement.
Each case depends upon its particular facts and the powers of the court.
Protecting Assets After Remarriage
Second marriages and blended families often create estate planning challenges.
Many couples want to provide security for a surviving spouse while ensuring that assets ultimately pass to their own children.
Without careful planning, assets intended for children from a first relationship may end up passing elsewhere.
A common example arises where:
- Husband leaves everything to wife.
- Wife later remarries.
- Wife changes her Will.
- Assets ultimately pass to the new family rather than the original children.
A trust may help address this concern.
Life Interest Trusts and Asset Protection
These kind of legal structures can allow:
- A surviving spouse to benefit from assets during their lifetime.
- Continued occupation of the family home.
- Access to income from investments.
- Preservation of capital for children.
If the surviving spouse later dies, the trust assets can pass according to the original trust arrangements.
This type of planning is often particularly useful for:
- Second marriages.
- Blended families.
- Couples with children from previous relationships.
- Families seeking long-term wealth preservation.
The Asset Protection Trust for Blended Families
Blended families are increasingly common. Many people wish to balance competing responsibilities between:
- Current spouses or partners.
- Children from previous relationships.
- Stepchildren.
- Grandchildren.
Proper estate planning can help create a structure that reflects these competing priorities.
For example:
If a surviving spouse requires financial security, then a trust may provide benefits during their lifetime while preserving capital for children from an earlier relationship.
This type of planning can help reduce the risk of future disputes and provide greater certainty for all family members.
Protecting Business Assets
Business owners often have significant wealth tied up in their businesses. Without appropriate planning, business interests may become vulnerable to:
- Family disputes.
- Divorce settlements.
- Inheritance disputes.
- Poor succession planning.
- Unexpected death or incapacity.
Trust structures are sometimes used alongside business succession planning to help preserve family ownership and facilitate orderly transfer between generations.
Business owners frequently wish to achieve several objectives simultaneously:
- Protect the business.
- Maintain continuity.
- Minimise disruption.
- Preserve family control.
- Support inheritance tax planning.
According to the estate planning solicitors at Bonallack & Bishop, business succession planning often works most effectively when considered well before retirement or death rather than during a crisis.
Protecting Vulnerable Beneficiaries
Some beneficiaries may require additional protection. Examples of this kind of situation include:
- Beneficiaries with disabilities.
- Beneficiaries with learning difficulties.
- Beneficiaries with mental health conditions.
- Beneficiaries affected by addiction.
- Beneficiaries who struggle with financial management.
A trust can provide a framework that allows funds to be used for the beneficiary’s benefit without placing full control in their hands.
This may protect both the beneficiary and the assets intended for them.
Trustees can make decisions about how and when funds should be used while taking account of changing circumstances.
Wealth Preservation Across Generations
Many clients are not focused solely on immediate inheritance planning.Instead, they may wish to preserve wealth across multiple generations.
A trust can sometimes assist by:
- Preventing fragmentation of family wealth.
- Protecting valuable assets.
- Preserving investment portfolios.
- Safeguarding family businesses.
- Supporting grandchildren and future generations.
Families who have accumulated substantial assets often view trusts as part of a wider long-term strategy rather than simply a mechanism for passing assets on death.
The Asset Protection Trust and Inheritance Tax Planning
Trusts are frequently discussed alongside inheritance tax planning.
However, inheritance tax planning is a complex area and should always be considered carefully.
Depending upon the trust structure used, tax consequences may arise including:
- Inheritance tax charges.
- Income tax liabilities.
- Capital gains tax liabilities.
- Periodic trust charges.
- Exit charges.
The Inheritance Tax Act 1984 contains many of the key statutory provisions governing inheritance tax treatment.
A trust should never be established solely because it is described as a tax-saving arrangement.
Effective inheritance planning requires careful consideration of:
- Family objectives.
- Asset types.
- Beneficiary needs.
- Tax implications.
- Long-term flexibility.
At Bonallack & Bishop, our estate planning team can advise on how trusts fit within broader inheritance tax planning strategies.
Asset Protection Trusts and Care Home Fees
The Question Many People Ask
One of the most common questions we receive is:
“Can I put my house into a trust so the council cannot take it for care home fees?”
This is an area where misinformation is widespread. Many websites and non-regulated advisers make claims that are overly simplistic or potentially misleading. The reality is more complicated.
The Legal Position
Local authorities assess an individual’s financial circumstances when determining whether they should contribute towards care costs.
The relevant legal framework includes:
- The Care Act 2014.
- Care and Support Statutory Guidance.
- Local authority charging rules.
- Deprivation of assets principles.
A local authority is entitled to examine arrangements that appear designed primarily to avoid care fees.
What Is Deprivation of Assets?
Deprivation of assets occurs when a person deliberately reduces the value of their estate in order to avoid paying for care. Examples may include:
- Giving away property.
- Transferring savings.
- Selling assets below market value.
- Creating arrangements designed primarily to avoid care charges.
If a local authority concludes that deliberate deprivation has occurred, it may still assess the individual as though they continue to own the asset.
This is known as notional capital.
There Is No Seven-Year Rule for Care Fees
One of the most common misconceptions concerns a supposed seven-year rule. The seven-year inheritance tax rule does not automatically apply to care fee assessments.
Local authorities are entitled to consider the purpose behind transactions regardless of when they occurred.
The key question is often why the arrangement was made.
Timing Matters
If an individual transfers assets when they are fit, healthy and have no foreseeable care needs, the position may differ significantly from someone who transfers assets after receiving a diagnosis or when care needs are already foreseeable.
Each case is assessed on its own facts.
Can an Asset Protection Trust Protect Against Care Fees?
Sometimes that kind of protection is possible – but sometimes it is not.
No responsible solicitor can guarantee that a trust Will protect assets from future care fees.
Any adviser who promises guaranteed protection should be approached with caution.
Whether a trust achieves any protection depends upon numerous factors including:
- The timing of the arrangement.
- The individual’s health.
- Their intentions.
- The structure used.
- Future circumstances.
- Local authority assessment.
Important Limitation
An asset protection trust is not a magic solution. If the primary purpose of creating this kind of legal vehicle is to avoid future care costs, then a local authority may investigate whether deprivation of assets has occurred.
The existence of a trust alone does not prevent such an investigation.
When Trust Planning May Still Be Appropriate
Trust planning can still be entirely legitimate where there are genuine estate planning objectives such as:
- Protecting children.
- Preserving family wealth.
- Providing for a surviving spouse.
- Protecting vulnerable beneficiaries.
- Succession planning.
- Managing business assets.
If a trust is established for genuine family and estate planning reasons, then those objectives should be properly documented and supported.
Are Asset Protection Trusts Right for Everyone?
No, they certainly do not suit everybody. However these kind of legal structures can be extremely useful in the right circumstances. However, they involve:
- Ongoing administration.
- Trustee responsibilities.
- Potential tax consequences.
- Professional costs.
- Long-term obligations.
For some families, a carefully drafted Will may be sufficient. For others, a trust may provide significant advantages. The correct solution depends on the family’s objectives, assets and circumstances.
How Our Asset Protection Trust Solicitors Can Help
Our private client team advises clients across England and Wales on:
- Asset protection trusts.
- Family wealth preservation.
- Inheritance tax planning.
- Trust administration.
- Wills and estate planning.
- Trusts for children and grandchildren.
- Vulnerable beneficiary trusts.
- Business succession planning.
- Life interest trusts.
- Blended family estate planning.
We can help you understand the advantages, risks and limitations of different structures and identify whether trust planning is appropriate for your circumstances.
Speak to an Asset Protection Trust Solicitor
If you are considering ways to protect family wealth, preserve assets for future generations or strengthen your estate planning arrangements, our experienced private client solicitors can help.
Bonallack & Bishop advises clients throughout England and Wales on trusts, Wills, inheritance planning and family wealth protection.
Contact us today for expert advice on whether an asset protection trust could form part of your estate planning strategy.
Asset Protection Trust Solicitor – FAQ
What is an asset protection trust?
An asset protection trust is a trust designed to help preserve and protect assets for beneficiaries. It may be used as part of wider estate planning, inheritance planning or family wealth preservation arrangements.
Can an asset protection trust protect my house from care home fees?
Possibly, but there are no guarantees. Local authorities can investigate whether deprivation of assets has occurred and may still assess a person as owning assets that have been transferred into a trust in certain circumstances.
What is deprivation of assets?
Deprivation of assets occurs when a person deliberately reduces the value of their estate in order to avoid paying for care fees or other liabilities. Local authorities can take such transactions into account when assessing care costs.
Can an asset protection trust protect my children’s inheritance from divorce?
Trusts can sometimes provide greater protection than an outright inheritance. However, family courts have wide powers and no trust can guarantee protection in every divorce case.
Are asset protection trusts suitable for blended families?
Yes. Trusts are often used to provide for a surviving spouse while preserving assets for children from an earlier relationship.
Can business assets be placed into a trust?
In some circumstances business interests may be included within trust planning as part of wider succession and inheritance tax planning. Specialist advice is essential because tax consequences can arise.
Can an asset protection trust help vulnerable beneficiaries?
Yes. Trusts are commonly used to protect beneficiaries who may struggle to manage finances independently or who require ongoing support.
Do asset protection trusts save inheritance tax?
Not necessarily. Trusts can sometimes form part of inheritance tax planning, but they can also create tax liabilities. Specialist legal and tax advice should always be obtained before establishing a trust.
