‘A worthless piece of paper…..’: Think twice before creating an Asset Protection Trust

If approached by someone extolling the virtues of Asset Protection Trusts (‘APTs’), it would be wise to think twice before agreeing to create a trust which could potentially cause you and your family serious distress.

Before explaining APTs in greater detail, it is worth reminding ourselves of the definition of a trust. A trust is a legal relationship created by a settlor when assets are placed under the control of a trustee for the benefit of a beneficiary, or for a specified purpose.

Trusts can be created expressly by a settlor or imposed by law and are typically created to manage property or financial assets. One such form of trust that has been the focus of intense scrutiny are APTs.

APTs are trusts which have been sold as a way for people to protect their personal assets from future local authority care fee assessments as well as potentially reducing their estates Inheritance Tax bill. Unregulated advisors have been unscrupulously encouraging the public to create APTs by transferring their property or savings into a trust during their lifetime. In doing this, clients have been told that the assets will no longer form part of their estate as they no longer own the legal title to their assets. They are therefore under the illusion that local authorities cannot take the value of these assets into account on an assessment for liability to pay care fees.

Unfortunately this is a mistaken belief. Local authorities will assess these trusts when care fees must be paid, to investigate whether there has been a deliberate deprivation of assets from your estate. Upon investigation, if it is found that the trust was created to avoid paying local authority care fees then local authorities can treat you as still possessing that asset for the purpose of their financial assessment. This is especially the case when you or your spouses’ future care needs were reasonably foreseeable.

Equally, transferring property into an APT has resulted in clients facing sizeable capital gains and inheritance tax bills.

Regrettably, the above consequences of APTs were never explained to people that have spent thousands of pounds creating them in an effort to ringfence their property. Age UK has gone as far as describing these trusts as ‘a worthless piece of paper’.

The unregulated advisors behind these trusts have made millions from mis-selling APTs based on these false promises. The most prominent company behind this scam was called Universal Wealth. Advisors with false credentials from the company targeted people of retirement age at hundreds of seminars and talks to transfer their homes and savings into APTs.

Thankfully the scam was discovered and the owners of Universal Wealth, Steven and Melanie Long, were jailed for fraud. During the trial it was found that companies under their Universal Wealth umbrella group had taken £25 million of investments from unsuspecting clients.

Their clients are only now dealing with the consequences of the APTs that they made, ranging from significant CGT bills to difficulties in dealing with trusts where the directors of Universal Wealth were named as trustees.

Despite these practices coming to light over ten years ago, it is concerning that the mis-selling of APTs appears to be a continuing problem, be that door to door or even in the supermarket.

Now this isn’t to say all trusts are bad and certainly with the right advice from regulated professionals, they can be a very useful tool for clients.

If you would like to discuss matters, please contact our expert team on 01484 821500 or email willandprobate@ramsdens.co.uk