Tens of thousands of people have been duped into parting with thousands of pounds to set up so-called ‘Asset Protection Trusts‘, also sometimes called ‘Lifetime Trusts’, ‘Lifetime Asset Trusts’, ‘Property protection trusts’ or ‘Estate preservation trusts’, to shelter their assets. Some have paid up to £10,000 for what Age UK describes as “effectively a worthless piece of paper”. Others have been incorrectly advised that transferring their property into the names of their children will help avoid a hefty care bill. But cash-strapped Councils are clamping down on such cases where those needing care have deliberately deprived themselves of assets.
When a person needs care and is not entitled to funding, a Local Authority will look at any savings they have including their home, to see if they can afford to pay for the care themselves. Those with assets worth £23,250 or more will be expect to fund the entire cost of care themselves, while those with assets between £14,250 and £23,250 will have to make a contribution. The Local Authority funds care for those with assets under the £14,250 although funding is severely limited and if a particular care home is preferred, the person requiring care will often have to make a contribution regardless of their limited means.
If a person gives away their assets to avoid care, either by transferring them into a Trust or by gifting them to another person, the Council has the power to consider whether such actions amount to ‘deprivation of assets’. If there is no other plausible reason for the transaction, the Council can treat the person as if they still have the asset and charge them care fees accordingly.
North Somerset Council has used its powers 64 times in the past five years to tackle deprivation of assets cases. Image credit: Wikimedia.
One Council in North Somerset has used this power 64 times in the past five years, saving £1.3 million in care costs which have been directly charged to those concerned.
A spokesman from the Council told the Weston Mercury that people ‘cannot expect North Somerset to fund their care if they have deliberately deprived themselves of assets’.
An investigation by The Telegraph suggests that some Councils such as North Somerset pursue care-fee-dodgers more aggressively than others. However, on this point the Council responded:
“It is not necessarily true that we use this power more than other authorities, possibly we have been better at recording the deprivation findings. The charging policy is applied fairly and those who should pay for their care do pay and other citizens should not be penalised.”
In some cases, the Council has demanded that the person who has transferred assets pay for the full cost of their care. In other cases, the Council notes that it will increase the amount they are assessed to pay but they will still receive some assistance.
In May 2015, trusts and estates body STEP reported that 8 people were jailed for selling Asset Protection Trusts, having been convicted amongst other charges of fraudulent trading.
The alternative to Asset Protection Trusts
April King Legal has been advising clients for more than 25 years to avoid using so-called Asset Protection Trusts, and not to transfer their property to their son or daughter to avoid care fees. Instead, there is a legitimate, perfectly reasonable and entirely moral way to protect your share of the family estate from care costs.
Many couples hold their property as ‘joint tenants’ so that both own a 100% undivisable share. If one dies, the other continues to own 100% of the property. Neither party has a defined share that they can sell or leave in their Will whilst it is held as ‘joint tenants’.
An alternative approach is best illustrated by way of an example:
The above example shows that if a couple ‘severs the tenancy’ so each then holds a 50% share of the property as ‘joint tenants in common’, they can then leave their partner a life interest in their 50% share of the property on their death. On their partner’s death, the property goes to whoever they have named in their Will (it could for example go into a special type of Will for the benefit of their children and grandchildren). The advantage of this arrangement is that should their partner need care after their death, 50% of the property is protected from care fees. After all, why should they pay their partner’s care bill?
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Find out more: Click here to read our full article on Deprivation of Assets which explains the powers that the Local Authority have.