As we age we begin to think about how we can ensure our wishes are adhered to when it comes to passing on our estate to our loved ones. Whether you’re looking to reduce the inheritance tax burden, planning for potential care costs or looking to support your loved ones whilst you are still around, asset protection is a vital way to secure your financial legacy.
What is asset protection later in life?
Asset protection can be useful at multiple points in life. Many people will employ asset protection strategies in anticipation of divorce or in businesses. Later in life, estate planning and asset protection can be to safeguard your home, savings and investments from potential claims on your Will, inheritance taxes, and care costs later in life.
Tools like an asset preservation trust, family protection trust or home protection trust can ensure your assets are passed to beneficiaries in the way you intend without unnecessary loss due to tax, care costs and legal disputes.
Why plan ahead? The risks of not protecting your assets
Asset protection means that you can keep your estate intact and protect your assets against:
- Care costs whilst you’re alive which could consume the value of your savings and home.
- Inheritance tax (IHT) which could significantly reduce the value of what you leave behind.
- Disputes between family members which might arise over your estate.
- Legal issues with the distribution of your estate.
Planning your asset protection strategies ahead of time with a qualified asset protection solicitor gives you more options, control and peace of mind.
Using trusts for asset protection
Trusts are a powerful tool for later life planning. They allow you to hold certain assets for specific beneficiaries while maintaining flexibility and control. There are a few options to choose from.
Asset protection trust
An asset protection trust allows you to pass ownership and control of certain assets (property, investments etc.) to a trustee who will manage it for the sake of the chosen beneficiaries during the remainder of your lifetime. You give up legal ownership meaning that it can pass to beneficiaries when you pass away without being subject to tax, care fees or claims on your Will. You can remain as a beneficiary of the trust and continue to benefit, but it is no longer officially yours.
Family asset protection trust
A family asset protection trust is essentially the same as a regular asset protection trust, but with the emphasis on protecting family wealth, and passing it on, in-tact, to the next generation. This can also be useful to mitigate care home fee assessments.
Home protection trust
Allows you to place your property into trust to protect it from being sold to fund debts such as care home fees.
Property protection trust
This is like a home protection trust, but may also include other forms of real estate, not just the ‘family home’.
Trusts must be carefully and professionally structured to avoid unintended tax or legal consequences, which is why legal advice is essential.
Gifting assets: Opportunities and pitfalls
Gifting can be an effective way to reduce your taxable estate, but only when done correctly.
Types of gifts that are exempt from inheritance tax include:
- Gifts you give if you live for 7 years after giving them.
- Gifts between spouses: This can include gifting shares to a spouse as well as assets and cash gifts.
- A gift and loan trust can allow you to gift assets while still retaining access to some capital.
Generally, outside of these parameters, gifts will be subject to inheritance tax. Also watch out for capital gains tax on gifted shares when outside of the spousal exemption. It is crucial to speak to a qualified asset protection specialist solicitor who will be able to help you avoid any of these issues and maximise the value you can pass on to your loved ones.
Planning for care fees and means testing
The cost of long-term care can be substantial, and local authorities may assess your assets to determine eligibility for funding.
Placing assets into an asset protection trust or home protection trust may help, but must be done early. If the local authority believes you’ve deliberately reduced your assets to avoid care fees (known as deprivation of assets), they may still include them in the assessment.
An asset protection solicitor can help ensure your planning is both effective and compliant with current regulations.
Specific inheritance tax planning strategies
Effective inheritance IHT planning can significantly reduce the amount that your estate pays in tax. When you speak to an asset protection solicitor, some of the specific methods they may suggest are:
- Using discretionary trusts and IHT reliefs to pass on assets in a tax efficient way.
- Understanding the implications of inheritance tax and discretionary trusts, which offer flexibility but may be subject to periodic charges.
- Leveraging spousal exemptions, annual gift allowance and gifting shares to a spouse.
- Exploring equity release inheritance tax strategies, where the release of property equity is used to make gifts or settle liabilities.
- Knowing when bare trusts and inheritance tax align. Bare trusts give beneficiaries full entitlement but may have IHT benefits if structured properly.
Each option has legal and tax implications, so professional advice is crucial.
Common mistakes to avoid
When estate planning, some of the most common and costly mistakes include:
- Leaving planning too late, especially for care or IHT purposes.
- Failing to seek professional advice from a tax planning or asset protection legal specialist before creating a trust or making gifts.
- Misunderstanding how trusts affect access to your capital. In many cases you fully hand over ownership, but there are circumstances where you can retain some of the benefits.
When should you start planning?
The sooner you begin your estate planning and trusts, the more options you have. It is sensible to begin in your 50s or 60s before any major health changes or care needs arise. Certain planning tools like trusts or gifting need to be in place well before they are needed to be effective.
How a solicitor can help
Later life planning is complex, with legal, tax, and personal factors to consider. A specialist solicitor can:
- Help you identify the best way to protect assets for your goals.
- Draft legally sound asset protection trusts and Wills.
- Advise on gifting, including capital gains on gifted shares.
- Navigate IHT, care fee planning, and family asset protection trust structures.
- Ensure your wishes are clearly documented and legally enforceable.
Working with one of our qualified asset protection solicitors will give you the confidence that your affairs are in order, your loved ones are protected, and your legacy is preserved. Contact Merriman Solicitors today to discuss your asset protection options.
