Trusts and Protecting Your Assets | Curtis Parkinson

Trusts and Protecting Your Assets

2 January, 2022 4 minutes reading time


We’ve written a few articles about the government’s planned increases in probate fees. A plan which, if implemented as intended, has been dubbed a ‘stealth tax’. Unsurprisingly, amid widespread condemnation, we’ve seen a marked increase in enquiries from clients about the potential benefits of setting up trusts. Can this approach mitigate inheritance tax liability and increased probate fees?

So, here’s a brief guide as to why you might use a trust and what’s involved.

Protecting Your Property for the Future

When you’re gone, you’ll want all your hard work to fully benefit your family and loved ones. But there are some risks attached to passing on wealth – such as your house – in your Will or leaving gifts (including property) to loved ones whilst you are alive.

The main motivators behind signing over the family home are:

  1. to avoid over-paying for future care costs
  2. to avoid Inheritance Tax and or probate fees
  3. to provide children with a foot on the housing ladder

Pitfalls to Signing Over Your Property Before You Die

1. Care Fees – Proceed With Caution!

Many think transferring their home to a family can protect its value from care home fee assessments. However, local authorities often investigate such transfers, looking at the timing and motives behind them. If they suspect the primary reason was to avoid care fees, they will likely include the property in the assessment.

Contrary to popular belief, there’s no strict time limit on how far back they can look—it could theoretically be any time. If avoiding care fees is the main reason for the transfer, and there are no other significant reasons, it could be considered “deliberate deprivation of assets,” which can be a criminal offence.

2. Tax & Probate Fees

Transferring your home while continuing to live there won’t avoid Inheritance Tax (IHT). This falls under the “gift with reservation of benefit” rules, meaning the house will still be included in your estate and subject to IHT after your death.

Also, if you transfer your house to your children but later need to sell it, you might incur capital gains tax on the property’s increased value since the original transfer. If IHT isn’t a concern, the potential probate fee savings might be worthwhile for larger estates.

3. Helping the kids – relinquishing control carries risks

Family disputes are common and can have huge financial and emotional consequences. Once you transfer ownership, you’re potentially dependent on your family (including their spouses and families). Financial pressures can complicate things, and situations can quickly worsen.

Events like death, divorce, or bankruptcy within the family might make you regret the transfer—it’s essential to consider worst-case scenarios. There could also be unforeseen issues with stamp duty, such as first-time buyer relief or second-home taxes when your children buy their own properties.

The Role of Trusts

There are several serious pitfalls to consider if you want to give your children your home while you’re alive. However, there are ways to plan a smooth and cost-effective transfer after your death.

Creating a trust is usually considered when planning anyone’s estate. There are numerous benefits of using trusts. For example, making a trust does, in some cases, mean that you avoid the probate process, which can sometimes be complicated and expensive for your beneficiaries.

People often create trust to ensure their property is dealt with exactly how they would like it to be. They derive peace of mind that it is in a safe place and will be dealt with efficiently and quickly after their death. It also creates certainty as to the destination of the asset; particularly important in second marriage situations where there are two sets of children and you’re keen to avoid an argument.

On the flip side, rather than establishing a trust, a well-planned and executed Will can be a far better way to control the destination of your assets. Whilst probate can be complicated and time-consuming, the cost is comparable to setting up trusts in life.

Furthermore, it is possible to change the Will when/if required without consulting the rest of your family. This is particularly important if your circumstances have changed, for example, divorce or a second marriage.

Our Advice

Whatever you decide, you must know all the potential risks and benefits. And take specialist advice when you need it. If you would like more information or advice, please contact us to see how we can help.

Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.

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