We work hard during our lives to build up assets of value, sometimes receiving assets ourselves that have been passed on through our own families. What we hope is that we too can pass these hard earned assets down through our bloodline to benefit the future generations.
What happens if the people we want to benefit from our assets are too young or inexperienced to properly manage and preserve the assets or their personal circumstances are such that the assets could be lost through divorce, bankruptcy, substance abuse, mental health issues or simply squandering the assets through bad decision making? What happens to assets left to vulnerable beneficiaries who may be susceptible to abuse from outside influences?
The concern is that if assets are given direct to beneficiaries that the assets will be lost or wasted. An asset protection trust is a trust set up either during a person’s lifetime or on death which can hold assets to be managed by carefully selected trustees. Capital and/or income from the assets held in the trust can be used for the people you wish to benefit as and when their circumstances require it but with the protection of the trustees managing the trust fund.
What are the advantages of an asset protection trust?
Asset protection trusts have a number of advantages when used in an appropriate way with the proper advice:
Potential inheritance tax savings
Protecting assets from being lost following a second marriage
Protecting assets from being lost in the event that a beneficiary should go through a divorce or bankruptcy
Helping to avoid and/or simplify the probate process when you die for those assets held in the trust saving time and expense
Make sure your loved ones benefit at the right time for them
Provide protection against issues associated with funding long term care home fees
Protect assets from being squandered by beneficiaries
How does an asset protection trust work?
There are two main types of asset protection trust – a life interest trust or a discretionary trust. A life interest trust is set up to give one or more particular beneficiaries a right to use the assets in the trust for their lifetime with the capital passing on to specified beneficiaries when they die. A discretionary trust allows the trustees to make decisions as to when to pay capital and/or income to any or all of the beneficiaries named in the trust deed.
The trust is intended to preserve assets for future generations and to prevent the assets being lost or wasted. The trust can receive a number of different assets or investments depending upon the circumstances of the individual establishing the trust. The trust must be in writing and the assets to be held in the trust must be formally transferred to the trustees. For example, if a property is to be put into the trust then there must be a formal transfer deed signed by the parties and registered at HM Land Registry.
The trustees have wide powers to manage the assets in the trust and the choice of trustees needs careful consideration. The person setting up the trust can act as trustee during their lifetime, either jointly with professional advisors who understand your trust, or with trusted family relatives or friends.
How can we help?
Advise on whether an asset protection trust may be appropriate for you
Advise on the best people to act as trustees of the trust
Advise on who you can include as beneficiaries of the trust
Establish your trust and arrange for the transfer of any assets to the trustees
Record your wishes and guidance to your trustees to advise them on how you would like them to manage the trust after your death