Trusts & Care Fees – Buyer Beware!

Bevan & Buckland Accountants logoThe issue of paying for care fees continues to receive prominence in the national press, especially following the increased limits announced earlier this year, writes Gareth Tregidon, Accredited Later Life Adviser and Financial Planning Manager at Bevan & Buckland.

This has, over recent months, led to a lot of publicity regarding ways to help individuals avoid having to pay for care fees.  One of the schemes that have been heavily promoted is the “asset preservation” or “property protection” trust.

One of the most common questions I get asked relates to Local Authority means testing, and in particular whether there are ways to protect the family home.  Several firms are currently promoting trust-based schemes which suggest that they can protect the home, making it exempt under the means test.  All are perfectly legal, and many include a “guarantee” they will work.  However, there are a few things you need to consider before undertaking such an exercise, as well as some “schemes” to be wary of.

There are already certain exemptions that apply in law, which would mean that someone’s home is not automatically taken into account in any means test in the first place.  The most common of these is where there is a spouse/civil partner, a relative over 60 living at the property or an incapacitated relative living at the property.  In these cases, the value of the property is disregarded.

However, even if you do not qualify under these exemptions, there is still no guarantee that these “preservation/protection” trusts will work in protecting the home from the means test.

Unless there is evidence that the reason for doing the trust is something other than avoiding care fees, the Local Authority could challenge the scheme under what is known as “deliberate deprivation”.  If they can show that you have reduced the value of your assets (by transferring the property into a trust) in order to increase the amount the Local Authority would pay, whatever transactions you have undertaken will be ignored and the values included in the assessment.

This “deliberate deprivation” rule does not just apply to property. It also applies to any assets that would form part of the means test the Local Authority carries out.  Age UK have an excellent factsheet which explains deprivation and the means test, which you can find here.

For example, there is currently an exemption from the means test that applies to certain types of investment bonds.  We heard of one lady who, having received a recommendation to invest in one of these contracts, hand-wrote a note on the report she received from her adviser that investing in this way would remove the funds from the means test.  The Local Authority called for details of her investments, saw a copy of the report with her notes, and successfully claimed this was deliberate deprivation.

There are many good reasons for creating trusts, either in terms of tax planning or for other reasons.  In the right circumstances they can provide a highly effective vehicle for ensuring that assets are received by the right people at the right time, as well as legitimately minimising costs (including tax).  However, when used without proper advice and guidance they not only fail to do the job they were set up for, but can also cost a lot to sort out any problems.  To put it another way, you could end up paying a lot of money for something that doesn’t actually work!

On the issue of cost, we have seen some schemes marketed as a package to include Wills, Lasting Powers of Attorney, splitting the tenancy on the home and the “preservation/protection” trust.  One client commented recently that the price of the package would have looked good had he not found out about additional costs at a follow up meeting.  In their case the initial fee (of around £995 plus VAT) would be followed by a payment of £50 per month over the first 3 years to “manage” the trust, plus a final payment (that he still isn’t sure what it’s for).  We worked through the figures and calculated that he would end up paying around £5,000.

In the above example, no account was taken of:

a)      The fact that they didn’t actually need new Wills or LPAs, having done new ones 2 years ago with a reputable local solicitor.

b)      Despite asking, they were unable to understand what “management” would take place for the quoted sums, although this seems to be to provide professional trustee services.  It is worth noting that the trust wording did not allow the clients to replace the trustees during the first 3 years, and so avoid these costs.

c)      At no point were they asked whether there was a reason for needing a trust, nor were their particular circumstances discussed in any detail.

On the latter point, this couple’s estate is below the Inheritance Tax threshold and there are no other obvious reasons why they would need a trust. In short, they could have spent money on a package that they didn’t actually need, and one which would probably not work anyway.  The solicitor I put them in touch with confirmed my views, and has actually put in place some other arrangements.  The total cost for the solicitor was £650 – somewhat cheaper than the £5,000 they would have spent otherwise!

However, don’t take my word for it!  The issue around the sale of “asset protection trusts” has been raised several times over the last year, most notably in (click on the dates to be taken to the articles):

If you want advice on care fees and making sure assets are protected as far as possible, you need to speak to an expert who will take your specific circumstances into account.  This may involve a discussion with a solicitor, a specialist financial planner or, more likely, both.

With more than 14 years’ experience in helping people and their relatives in both care fees and estate planning, I would be happy to discuss your requirements with you.  All initial discussions are free and without obligation, and we comply with the Codes of Ethics of both the Institute of Financial Planning and the Society of Later Life Advisers (details of both can be found here on our website).  All of our advice is provided in writing, and all fees and other costs explained in full in advance.

Gareth Tregidon.

Gareth Tregidon is manager of Bevan & Buckland’s Financial Planning Department, which operates from the firm’s Swansea, Pembroke and Haverfordwest offices. The department provides fee-based advice to personal and business clients, both from within the firm and elsewhere.

Gareth is a Certified Financial PlannerCM and an accredited Later Life Adviser with the Society of Later Life Advisers (SOLLA).  He is former Chairman of the Institute of Financial Planning in South Wales, and an assessor for the internationally recognised Certified Financial PlannerCM licence. 

http://www.bevanbuckland.co.uk/services/financial-planning

Bevan & Buckland Accountants Swansea Tel: 01792 410100

Bevan & Buckland Accountants Haverfordwest Tel: 01437 760666

Bevan & Buckland Accountants Pembroke Tel: 01646 682383

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