Lifetime trusts are often promoted as a way to protect the family home from care fees. However, the legal position is frequently misunderstood. Not least by McClures Solicitors and Universal Wealth (see at the foot).
This article only relates to lifetime trusts created during a person’s lifetime — not trusts written into a Will.
In many cases, the home is transferred into trust and legally owned by the trustees, while the person who created the trust continues living there rent free.
It is important to understand that lifetime trusts can have legitimate uses. However, using a lifetime trust primarily to avoid care fees is unlikely to succeed under current rules.
What Is a Lifetime Trust?
Lifetime trusts over property are often marketed as:
- Asset Protection Trusts
- Home Protection Trusts
- Family Trusts
There are different structures, but they usually involve transferring some or all of the ownership of a property into a trust.
The trust may allow:
- the person creating the trust to continue living in the property; or
- the person to remain a possible beneficiary under a discretionary trust.
Some trusts continue after death, while others end when the person dies.
Lifetime Trusts and Care Fees
If someone later requires residential care, the local authority will carry out a financial assessment to decide how much they should contribute towards care costs.
As part of this assessment, the council will look at:
- savings and investments;
- income; and
- property ownership.
This is where lifetime trusts and care fees become closely connected
Deliberate Deprivation? How Councils Decide
The key question is not simply when the trust was created, but why it was created.
The local authority may consider:
- whether avoiding care fees was a significant reason for the transfer;
- whether care needs could reasonably have been foreseen; and
- whether the person expected they may need to contribute to care in future.
The 7 Year Rule is irrelevant
Many people believe that if a trust was set up more than seven years before care is needed, it is automatically safe from challenge.
This is incorrect.
The seven-year rule relates to inheritance tax and does not apply to care fee assessments. There is not even a potential Inheritance Tax benefit unless you pay a full professionally assessed and reviewed market rent, and those who receive the rent pay any tax due. Otherwise it is a GROB: gift with reservation of benefit, so it is still taxed as part of your estate, despite being technically outside of it. This can lead to the rest of your estate being dramatically impacted by paying the full IHT bill, including that of the Trust,
There is no fixed time limit for deprivation of assets investigations.
Conclusion – are Lifetime Trusts a Way To Avoid Care Fees?
Lifetime trusts should not be viewed as a way to avoid care fees.
The most important issue is whether the arrangement could be seen as deliberate deprivation of assets. There is no guaranteed “safe” time period, and each case depends on the individual circumstances and intentions at the time the trust was created.
Although lifetime trusts are sometimes marketed as offering complete protection from care fees, this is rarely the reality in practice.
Do Lifetime Trusts Have Legitimate Uses?
Examples may include:
- protecting assets for vulnerable or disabled beneficiaries;
- helping manage assets for beneficiaries who are young, financially inexperienced or going through difficulties;
- preserving family assets after remarriage or within blended families;
- succession planning for business or agricultural assets;
- inheritance tax planning in appropriate circumstances;
- protecting funds following compensation payments or personal injury awards;
- providing controlled gifts to children or grandchildren over time;
- avoiding disputes over jointly owned family assets; and
- maintaining continuity and management of family property or investments.
In these situations, the trust is usually being created for wider estate planning or family protection reasons, rather than simply to avoid future care costs.
Where care fee avoidance appears to be a significant motive, however, local authorities may still investigate deprivation of assets regardless of the structure used.
Call me on 01323 766766 if you feel a Lifetime Trust may be beneficial
Contact details for McClures Solicitors liquidator etc
For McClure Solicitors, the firm entered administration in 2021 and client files/funds were transferred to Jones Whyte LLP. Current contact details commonly given for former McClure clients are:
- 0141 674 4366
- 0141 375 1222
- Jones Whyte McClure client page
For negligence/insurance claims relating to McClure:
- Lockton (Master Policy brokers)
- 0131 345 5599
- masterpolicyteam@uk.lockton.com
For Universal Wealth Preservation / Steven Long companies, the main liquidation mentioned publicly relates to Universal Asset Protection Ltd entering compulsory liquidation in May 2018. STEP’s guidance page is here:
Try the form at the bottom of the page linked too below if you were affected by the Steven Long / Universal Wealth debacle; they have some expertise in this area.