Trusts and asset protection are increasingly important for individuals and families who want to safeguard assets, plan for the future, and reduce exposure to unnecessary risks. Whether you are concerned about care home fees, inheritance tax, or protecting family wealth from divorce or bankruptcy, trusts can play a valuable role as part of a wider financial and estate planning strategy.
Below, our private client team answers some of the most frequently asked questions about trusts and asset protection.
What are trusts and asset protection?
Trusts and asset protection refer to legal arrangements designed to protect assets for the benefit of chosen individuals, while managing risks such as tax liabilities, long-term care costs, and relationship breakdowns.
A trust allows assets to be transferred to trustees who hold and manage them for the benefit of beneficiaries. Once assets are placed into a trust, they may no longer form part of the individual’s personal estate, depending on the structure used. This can offer family protection, flexibility, and peace of mind when used appropriately.
What is asset protection and why is it important?
Asset protection focuses on safeguarding assets against future uncertainties, including illness, financial claims, or family disputes. It is particularly relevant for individuals who:
- Own property or significant savings
- Want to protect wealth for future generations
- Are concerned about care home fees
- Wish to minimise exposure to inheritance tax
When used correctly, asset protection planning can help preserve wealth while remaining compliant with UK law.
What types of trusts are available?
There is no single “one-size-fits-all” solution. The type of trust used will depend on individual circumstances and long-term objectives. Common options include:
- Discretionary trusts
- Life interest trusts
- Bare trusts
- Asset protection trusts (APTs)
Each trust offers different levels of control, tax treatment, and protection. Choosing the right structure requires careful legal and financial advice.
What is an Asset Protection Trust?
An Asset Protection Trust is designed to protect specific assets, commonly property, while allowing continued benefit or occupation in some cases. These trust offers can form part of broader family protection planning.
However, asset protection trusts are complex and can be time consuming to set up correctly. They must be tailored to individual needs and comply with strict legal and tax requirements.
Can trusts help protect assets from care home fees?
This is one of the most common questions we receive. Trusts can, in some circumstances, help reduce exposure to care home fees, but they are not a guaranteed solution.
Local authorities assess whether individuals have deliberately reduced their assets to avoid paying care fees. If assets are transferred into a trust primarily to avoid paying care fees, this may be treated as deliberate deprivation. In such cases, the local authority can still take the assets into account when assessing care costs.
Early planning is essential, and trusts are most effective when established well before care is foreseeable.
What is deliberate deprivation?
Deliberate deprivation occurs when someone intentionally gives away or restructures assets to reduce their contribution towards care home fees. If a local authority believes this has occurred, they may assess the individual as if they still own the assets.
This is why professional advice from a specialist law firm is vital before attempting to set up an asset protection arrangement.
How do trusts affect inheritance tax?
Trusts can play a role in inheritance tax planning, but they do not automatically eliminate tax liabilities. Some trusts may trigger inheritance tax charges when assets are transferred into them, as well as ongoing and exit charges.
That said, with careful planning, trusts can help manage inheritance tax exposure over time and ensure assets are passed on in line with your wishes.
Are there capital gains tax implications?
Yes. When assets are transferred into or out of a trust, capital gains tax may arise, particularly where property or investments are involved. Trust asset disposals can also trigger capital gains tax during the lifetime of the trust.
It is crucial to understand the full tax position before proceeding, as unexpected tax liabilities can significantly reduce the effectiveness of an asset protection strategy.
Can trusts protect assets from divorce or bankruptcy?
Trusts may offer a degree of protection from claims arising from divorce or bankruptcy, but this depends on how and when the trust was created.
Courts have wide powers and can scrutinise trust arrangements, particularly if they believe a trust was set up to defeat potential claims. Proper planning, transparency, and timing are essential to ensure trusts are effective and legally robust.
Who controls assets placed into a trust?
Once assets are placed into a trust, legal ownership usually passes to the trustees. Trustees must act in accordance with the trust deed and in the best interests of the beneficiaries.
Although this can feel like a loss of control, a well-drafted trust can include safeguards and guidance to ensure assets are managed responsibly.
Is setting up a trust right for everyone?
No. Trusts are not suitable for all circumstances. They can be complex, expensive to administer, and require ongoing compliance. In some cases, simpler estate planning tools may be more appropriate.
This is why expert advice from an experienced law firm is essential before deciding to set up an asset protection structure.
How can AFG Law help?
AFG Law’s private client team provides tailored advice on trusts and asset protection, helping individuals and families navigate complex legal and tax considerations with confidence.
We take the time to understand your circumstances, explain your options clearly, and ensure any trust arrangement aligns with your long-term goals while remaining fully compliant with UK law.
Speak to our private client team
If you are considering trusts and asset protection, or would like advice on safeguarding assets for the future, our private client team is here to help. Contact AFG Law today to discuss your circumstances and explore the most appropriate solutions for you and your family. Please get in touch with our team today via email at Privateclients@afglaw.co.uk or speak to one of our experts on the phone at 01204 920109.
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