The Willwriting Partnership

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Frequently Asked Questions about the Family Asset Protection Trust

1. Who are the trusts aimed at:

Anyone who is worried about the problems mentioned above. They are more beneficial for middle income clients with houses worth £120,000 to £400,000 and other assets up to around £100,000. It is extremely beneficial for those people who wish to ensure their estate is passed to children and family rather than to the state.

2. Do I have to tell the Inland Revenue:

Whilst you still live in the home, tax matters should not have a great impact. Even after the house is sold, it should be straightforward. The family trust must be registered with the Inland Revenue and an annual tax return completed. This is straightforward where only a property is included as no ‘income’ is received, therefore no tax payable.

3. Do Family Trusts save Inheritance Tax?

No. These trusts are classed as ‘life interest’ in order to allow you to remain living in the property and get access to any monies held in trust. The asset will remain part of your estate for inheritance tax purposes. However, please note, that there may be some inheritance tax to pay if the assets are over the current tax threshold of £325,000. Please ask for further details if this is the situation.

4. What about Capital Gains Tax?

There should be no CGT payable when placing your property into the trust. You can claim Principal Private Residence provided you live in the property when it is sold. If you no longer live in the property then the sale may be subject to GCT.

5. Do I have to pay income tax?

There is no income tax chargeable when placing assets into the trust. Whilst you continue to live in the property, you will not need to pay rent for living there. However, if you rent the property out then you must pay tax on the rental income. If the house is sold and the money invested, tax must then be paid on any interest generated.

6. What about ‘pre owned asset tax’

In some situations when property remains occupied by a person who has disposed of it, a special charge to income tax applies. This tax does not apply with family trusts. It only applies in special circumstances where inheritance tax is trying to be saved. A family trust will not mitigate or reduce inheritance tax.

7. Who can be the trustees?

Most of clients prefer to appoint these lawyers as their Trustees. However, we usually recommend that you are a trustee and your spouse / partner and also your children. You can also control who are the trustees. If you do not like the ones you originally appoint, you can change them at any time.

8. What happens if I want to move?

If you wish to move after placing your property into the trust you can do so. The named trustees would simply sign the contract of sale and purchase. Any new property would remain part of the trust so there is no need to prepare a new trust. Any surplus cash is still protected by the trust and will be simply added to any other savings and investments (if any) in the Trust.

9. Can other assets apart from property go into the trust?

You. As well as recommending the property to go into trust, we also recommend any assets over £23,000 is placed into it as well. This all depends on your own personal needs. You may wish to retain full and unrestricted control over your money but wish to protect the value of your house.

10. Is the trust guaranteed to work?

In respect of probate fees it is guaranteed. With regard to care fees, transfers into a trust made within the 5 years, before needing care, may be challenged by the Local Authority. The LA must prove that you placed the property into trust to deliberately deprive yourself of the asset. This is difficult to prove if done at least 6 months before entering care. Please see separate information on this.

11. How long does the trust last and how does it end?

The trust can last for a maximum period of 125 years. It will usually end on the death of you and your spouse. The property would then be sold and the proceeds split between the persons of your choice.

12. Is there a limit on what can be placed into the trust?

Yes. Anything over the inheritance tax threshold of £325,000 per person will attract tax at 20%. If your house is worth more than £325,000 then it is sensible to convey a smaller share of it into the trust.

13. Will I still need a lasting power of attorney?

It is advisable so that assets not placed into the trust can be dealt with if need be.

14. Do I have to keep any records?

It is sensible for you and the other trustees to keep records of receipts and payments relating to the trust. The trustees should ideally meet once a year to discuss the trust and decide on the practical issues such as repair and maintenance of the property.

15. Who insures the property?

If the property is placed into the trust then the building insurance should be in the name of the trustees. Contents insurance should remain in your own name.

16. Is it worth the fee?

Placing assets into a trust reduces any costs in relation to administering your estate on your death. It can also potentially save your assets being eroded by around £30,000 per year on average nursing costs, should you go into full time care.

Contact us for a free consultation,
or call 0161 7054382 now.