Many people wish to use trusts to protect their home or other assets, before it is too late. Others want to make sure their hard won wealth is not squandered by an irresponsible child, lost in a divorce (as part of the settlement) or just increases the Taxman’s take when inherited by a child in poor health.
A rising proportion of people are ending up in long term care, so it is an important issue to consider the situation well in advance. If you and your family have a good health record, then a proper review should ideally take place before you retire, or at least in your early 60’s. Trusts may be effective at short notice, but they are best arranged many years before ill health sets in. Though ill health is not necessarily a bar to the successful use of Trusts.
So the options:
1) Do nothing and leave everything to chance
The most commonly favoured option! And the most unwise.
2) Give your assets away now
Definitely a dangerous option.
- If your home belongs to someone else and they die, there could be 40% tax to pay on it.
- If you don’t pay a full market rent on it, it will stay in your estate for Inheritance Tax purposes, despite your planning.
- If the person you give it too dies, then their beneficiaries or creditors will own your home.
- If they get divorced, half of you home could belong to an angry ex-spouse of one of your children. Not a great situation to be in!
3) Use Protective Property Trust Wills
These only work for couples. But they are relatively inexpensive – typically less than the cost of a weeks care fees. But the don’t do the job of a full Home Protection Trust plan and offer significantly less protection. Our booklet explains in more detail.
4) Buy an Immediate Care Annuity
These are obtainable from Independent Financial Advisers, and are bought at the point of need – as you go into care. Effectively, the insurance company takes a view on how long you will live, and offers you a high fixed interest rate in exchange for a substantial lump sum. The downside is that once you have handed over the money, all you have is a guaranteed income for life. Typically, if you die unexpectedly after 6 months, your family have lost the amount you gave to the insurance company. And the insurance company has a windfall, some of which will go to subsidising those awkward folk who last 30 years when they should have lasted only three!
5) Invest in a Legacy Protection Plan Trust
For people whose assets are below the Nil Rate Band of Inheritance Tax, then the basic Legacy Protection Plan Trust is ideal. It costs only the equivalent of three or four weeks care fees for one person.
6) If Inheritance Tax is an issue
Then the Family Protection Trust provides far greater flexibility. We don’t want to put too much information on this top of the range Trust here. Suffice it to say that each plan can be tailored to your specific circumstances and requirements. Contact us for more details.
The Family Protection Trust typically costs the equivalent of 4 to 6 weeks care fees for one person.
7) Pilot Trusts
Pilot Trusts are a useful extra for some and can be very useful in the process. They are commonly used to receive Death In Service benefits to give increased flexibility and control, but they are generally part of a larger plan.