Do you have a question about Property Protection and Care Fees?
Browse through our FAQ's or call Heritage on 01603 430092
1 – WHAT IS THE FAMILY TRUST?
It might help to think of a Trust as a safety deposit box for you to keep your assets in. – You can pass your assets to a Family Trust established in your name and for your benefit whilst you are living…but why?
Placing your assets into a Family Trust should ensure that they pass to the people you want them to after your death, according to the terms of the Trust, or under the terms of your Will. The inheritance due to any unreliable beneficiary can be protected by the trust and be passed to them at a more appropriate time.
If you originally planned to leave everything to your surviving spouse or partner, but have children from a previous relationship or marriage that you would like to ultimately benefit, then the trust can be used to protect their intended inheritance.
The value of the Trust won’t be eroded by the cost of administering your estate (probate costs) or by the cost of residential care in later life, if needed.
When the Trust ends your Trustees will pass the assets to your beneficiaries without having to follow any complicated processes or procedures, otherwise known as a Grant of Probate.
2 – BUT MY FAMILY WILL DEAL WITH THINGS AFTER MY DEATH
The procedures that your family have to follow when you die are often not as straight forward as you might expect. If your Will contains a Will-Trust for example, this needs to be managed too. The cost incurred by your executors in gaining specialist help from a solicitor or bank could run into tens of thousands of pounds. Banks typically charge between 3% and 5% of the whole value of the estate.
Even if the family decide to take on the job themselves the process involved in applying for the Grant of Probate can be a very lengthy, time consuming and frustrating job. Your family may not have access to any part of your estate for up to a year or even longer in some cases.
3 – THE COST OF CARE
If you own assets above £23,000 (2009-2010) and need residential care in later life you are expected to pay for ALL the costs and may have to sell assets such as your home in certain circumstances. However, if you have already placed your house in to a Family Trust it is highly unlikely that it can be used toward these costs.
4 – BUT MY FAMILY WILL LOOK AFTER ME
Hopefully you will never need to go into residential care but unfortunately 1 in 3 women and 1 in 4 men over the age of 65 do go into residential care so it can never be ruled out.
We are all living longer, and so the chances that we might need residential care later in life are increasing. Whilst family often start out with the best of intentions in wishing to take care of you, in reality it could be quite a difficult task and may not always be a realistic option. Moving into residential care often happens after suffering a fall at home or as a result of other previous health problems; the decision is sometimes taken out of our control.
5 – IS IT WORTH IT?
Placing assets into a Family Asset Protection Trust reduces any costs in relation to administering the estate, and potentially saves the estate being eroded by around £26,000 – £50,000 a year (the average cost of residential care in England and Wales). Doing nothing will mean extra costs and additional work for the family, and the loss of further assets before death if long term residential care is needed.
6 – WHO SHOULD BE THE TRUSTEES OF MY FAMILY TRUST?
The solicitors we use to draw up the Trust deed are familiar with acting as Trustees. Most of our clients prefer to appoint these solicitors as their Trustees in addition to your self or a family member. This ensures independence; it also means that experts are at hand.
You control the trustees - you can appoint new trustees and remove existing ones if you wish.
7 – CAN I TRUST THE SOLICITORS?
Solicitors are professional people and they are NOT beneficiaries of the Trust. They cannot benefit from the Trust in any way and like all solicitors they are supervised and controlled by The Law Society – they also have Professional Indemnity Insurance cover. They are bound by the terms of the Trust, a copy of which you receive before signing.
8 – WHAT ABOUT ONGOING FEES?
There aren’t any! – with this scheme you pay the costs at the beginning and you have nothing further to pay unless you go into residential care and there is a dispute with the Council, which is very rare. There should be no annual trust tax return to complete as no taxable income is generated.
9 – CAN I CHANGE MY MIND?
Yes – since YOU control the Trust you can close the Trust and transfer the assets back into your name at any time.
10 – WHAT HAPPENS IF ONE OF US DIES?
Nothing – the Trust, and the protection it gives, simply continues as before until the second person dies. The survivor continues to retain control of the Trust.
11 – WHAT HAPPENS IF ONE OF THE TRUSTEES DIES?
A new Trustee is simply appointed to act in their place – this would of course be someone of your choosing.
12 – DO I STILL NEED TO MAKE A WILL AND LASTING POWER OF ATTORNEY?
Anything you put into the Trust will be distributed in accordance with your expressed wishes and normally in accordance with your Will. The Will also distributes anything you own when you die that you haven’t put into Trust.
The Lasting Power of Attorney document still enables your appointed people (Attorneys) to manage what you didn’t put into the Trust whilst you are alive but unable to manage yourself.
13 – WHO CAN SET UP A FAMILY TRUST?
Any person who fully understands the scope and nature of their planning and who is mentally capable of making such decisions.
14 – WHAT TYPE OF ASSETS CAN BE PLACED WITHIN THE TRUST?
Commonly clients put their house (or their share if it is owned jointly) into the Trust. We usually recommend that any savings or other investments over £23,000 be placed within a Capital Investment Bond for protection of any cash assets.
Some assets however may be disregarded and can be left outside of the Trust. This applies also to all of your goods and chattels.
15 – ARE THERE ANY ASSETS, WHICH CAUSE A PROBLEM IF THEY ARE PLACED WITHIN THE TRUST?
Any assets, which might create an immediate Capital Gains Tax charge. This includes any property that is not your principle private residence, but this merely means that specialist and individual care is needed when considering your options (which is exactly what we provide). It does not mean that nothing can be done.
16 – CAN OTHER ASSETS BE ADDED LATER?
Yes – although care needs to be taken to ensure if any asset is added later it does not constitute a deliberate deprivation of capital.
17 – IS THERE ANY LIMIT ON THE VALUE OF ASSETS PLACED WITHIN A FAMILY TRUST?
Technically there is no limit to what can pass into the Trust. However, in practice no more than the amount that can be given away free of inheritance tax should be put in. Any amount passed into the Trust beyond this figure would be subject to an immediate IHT charge of 20% (of the amount over).
Should the value of Trust assets rise during the ten-year period, above the (rising) IHT threshold tax, the amount in excess will be taxable.
18 – WHEN IS THE BEST TIME TO SET UP A FAMILY TRUST?
As soon as possible! Local Authorities can look back to see why a Family Trust was set up and in what circumstances. Clearly if the Trust was set up at a time when the client was in good health, living independently and had no immediate prospect, or intention, of entering long term care it is highly unlikely that any questions would be asked.
However, Local Authorities can review all relevant medical and financial records during any investigation.
19 – CAN A FAMILY TRUST BE SET UP AFTER A CLIENT ENTERS CARE?
Yes it can. This will mean that your family does not have to worry about applying for a Grant of Probate after your death and the costs that this is likely to entail. Your assets can be transferred simply and quickly. The assets passed to Trust will however be assessed by the local authority and you would be required to continue to fund your own care.
20 – WHO WOULD BE THE BENEFICIARIES OF THE TRUST?
Just as you choose who benefits from your Will, you also decide who should benefit from the Trust. Quite often these are the same people. We will need to record all the relevant names and addresses.
21 – HOW LONG DOES THE TRUST LAST AND IN WHAT CIRCUMSTANCES DO IT END?
Technically the Trust lasts for 80 years, (this is set by act of parliament) but will usually be closed down by the Trustees, on the death of the Settlor or the Settlor’s spouse.
However, there may be circumstances where it is desirable to continue to run the Trust for longer. This may be the case, for example, if one of the beneficiaries is disabled, or going through a divorce or a bankruptcy. A protected, managed fund is advantageous in these types of cases, which is the primary reason for considering a Trust in the first place.
22 – WHAT IF THE CLIENT WISHES TO SELL THEIR PRESENT HOME & PURCHASE ANOTHER?
If you wish to move after placing the house in to a Family Trust you can do so. The Trustees would sign the paperwork but there are no restrictions on you. Any surplus cash is still protected by the Trust and will simply be added to any other savings and invested by the Trustees.
23 – IS THE TRUST GUARANTEED TO WORK FOR CARE HOME FEES?
As the law stands, if you can satisfy the two qualifying rules at the time you set up the Trust then there should be no problem. However, what we cannot guarantee is; any future changes in laws that might defeat the efficacy of the Trust.
You are always assured of all the other benefits of setting up the Trust and could save ten times the cost of the Trust in Probate fees and other costs depending upon the size and complexity of your estate.
24 – IS THE PLAN USEFUL FOR INHERITANCE TAX PLANING?
No – This type of trust is not designed for Inheritance Tax Planning. If you have an IHT problem we will give you specific advice on that. Please also note that the Trust will be registered with the Revenue and that if at the end of ten years the value of your trust is above the then exempt amount for IHT (£325,000 for 2009-2010), a small amount of IHT may be payable on the excess. This can be avoided by paying out of the Trust Fund prior to the tenth anniversary. It is seldom a problem.
25 – WHY USE THE WILKES PARTNERSHIP SOLICITORS?
The Wilkes Partnership solicitors have been preparing Trusts for clients for over 140 years, which is probably longer than any other legal firm. In the last 10 years they have specialised in setting up Trusts with the particular aim of protecting assets for probate and Care Cost purposes and have helped thousands of clients and their families in the process.
The Wilkes Partnership therefore, have substantial experience in setting up Trusts and actually making them work. Many clients have gone through the whole procedure from setting up the Trust, transferring the property into the Trust, then going into care and thereafter dying with the Estate being paid out to the beneficiaries free of care costs and free of probate costs. The Wilkes Partnership have, and will continue to, see the process through. Few, if any, legal firms have more experience in using Trusts for care cost and probate purposes.
26 – WHY IS PRE-OWNED ASSET TAX NOT A PROBLEM?
Pre-owned asset tax POET, does not apply when the property is moved into the trust as the POET rules are for the declaration of tax avoidance schemes and the use of trusts in the avoidance of IHT. There is no avoidance of any taxation with the FAPT.
27 – WHY ARE CAPITAL INVESTMENT BONDS USED FOR INVESTING THE CAPITAL?
CIB’s are used because apart from generating good commissions for the FA, they have life cover attached and are therefore treated as disregarded assets by the Local Authority, if for some reason the trust fails then the CIB’s are still safe.
28 – WHAT IF THERE IS STILL A MORTGAGE ON THE PROPERTY?
If there is still a mortgage outstanding even if it is only £1 or £100 because the Titles are in Deed Stored with the mortgage company, then The solicitors will obtain from the Lender a Redemption Statement showing the amount outstanding on the mortgage plus the exit charges payable to the Lender. That will be forwarded to the client and once we have confirmation from the Lender that that has been paid then the conveyance deed cancelling the mortgage can be registered.
