We are seeing an increase in the number of clients coming to us who have been sold or offered Asset Protection Trusts (“APTs”).
APTs are normally sold on the basis that they protect assets being used up for the payment of care home fees. However it is unlikely that they would stand up to any challenge by a local authority, and there are several side issues which give us grave concern.
By way of background, all “means tests” (for anything from Council Tax Benefit to Care Home fee costs) are assessments of whether you have enough income to pay your own way.
The rules are complex and work in a way that expects you to actually supplement your income by spending some of your assessable capital until you are below certain thresholds.
Currently, for care home fee assessments if an individual has less than £14,250 of assessable capital, they do not need to pay for care. Between £14,250 and £23,250, an individual is expected to make a contribution; and if an individual has capital in excess of £23,250, then they must pay for their care in full.
‘Assessable Capital’ is anything you would expect to fall into this category- including cash, shares, ISAs, banks and building society accounts; and may also include the house.
Certain assets are “disregarded assets” under the assessment rules; primarily a house occupied by the owner or an elderly or disabled relative or a minor child; chattels (ie personal belongings); and life insurance policies (including Funeral Bonds, and Investment Bonds issued as investment products by life insurance companies).
You need to be aware of the “Deprivation of Assets” rules. In essence the rule is that if you give away an asset, or acquire what would otherwise be a disregarded asset, with the intention of improving or preserving either a current or a future benefit entitlement you will be assessed as though you had not given the asset away or converted it to a disregarded asset.
There is no time limit on this; if there is a tainted motive then it does not matter how long ago the deed was done the rule still applies.
Local Authorities know the basis on which APTs are being sold; it is difficult to show any other motive for entering into an APT – it doesn’t save any tax (and many people who sign up are below the tax thresholds anyway).
We also have concerns about the fees charged both on setting up these Trusts and also any subsequent dealings with them, such as trying to get ownership of the property back to the family.
Advice in relation to trusts, your Will and your investments
You can ring-fence a lot of value by making sure that the Will of whichever of you dies first is worded appropriately; and by you (or perhaps more likely your attorneys) taking appropriate investment advice if the survivor has to go into care.