The rising cost of care fees, inheritance tax and an uncertain financial climate caused by Brexit confusion is creating a lot of anxiety for an ageing generation with property.
The thought of losing the asset a family work so hard for, to pay for care fees, has motivated a lot of people to use financial planning services. However, an increasing number of firms are encouraging family protection trusts that may not benefit the estate or could be illegal.
The lure of protecting your estate from losing a property to fund care fees, or safeguarding an estate against inheritance tax, has led to a huge increase in trust services that offer a magic solution but deliver very little.
Coffin Mew, a law firm in Hampshire, has warned of a huge increase in wealth investment scams targeting families in the region.
Although considered legal in many cases, the scam concerns selling people legal services and products that they do not need and may not help them. These trusts can cost thousands to set up and could lead to the homeowner inadvertently signing their home over to the trust.
Lindsay Taylor, a solicitor at Coffin Mew specialising in wills, trust and probate, explained: “These companies falsely advocate trusts as the best way to protect properties from care home fees and inheritance tax after death. They will set up a deed and transfer the property into the names of family members as trustees. We have even seen properties transferred into the names of the company directors.
“Clients approach us when they realise that they no longer own their home, for instance, when the sale of their house falls through due to the property being in a trust. Those affected have also found that they have lost the right to claim the rental income from their own properties.
“If you are considering legal work, assess carefully who you instruct to handle your legal affairs. A decision made in haste could cost you dear. A professional handling your affairs should not rush you into making any decision and should carefully explain to you the consequences, good and bad, of any legal action. Take professional advice from trusted individuals.”
Richard Bates, Partner and Specialist in Elderly Clients at Coole Bevis, said: “The kind of people attracted by these firms are of a generation that want to protect wealth and who are not expecting to have to pay for care. To me it’s quite a cynical business model, they are going after people who are potentially vulnerable and are being told what they want to hear.
“If you are going into a scheme with the intent of not paying for the full cost of care, and making the local authority put their hand into their pocket instead, there is the potential to commit a fraud.”
Louise Morris, a Director at AV Trinity, said: “Not only are people paying extortionate fees for trusts that may not work, but criminal charges may be bought.”
Although care costs can now exceed £1,000 per week and the estate may be liable for these costs, the effect of a ‘family protection trust’ could be the loss of ownership in the property a person seeks to protect or incriminating themselves in a potential fraud.
Do you know of any estates that have been complicated by similar trusts? Has your firm set up similar trusts that benefit the estate?
4 responses
I worked for a Network called The Right Mortgage and Protection Limited and they had a sister company called The Right Will. Their Wills and Trusts are set up by a company called Countrywide and they too endorsed Trusts too for protecting clients from care home costs and they have an insurance backed guarantee also. I must admit that I did wonder if this was actually legal. I no longer work for this company.
There are many reasons why people write trusts and people have done since the crusades (including royalty and MP’s on all sides of the house). I think to make comments suggesting fraud is insulting and simply poor one-sided journalism.
I totally agree Neil. Trusts can be set up for many reasons, however to set up to protect against care fees alone is illegal and this is where many later life planners fall foul. Trusts can be used to reduce probate, protect assets for the next generation and protect vulnerable beneficiaries. They can be a great asset to a family if they are given the correct advice from the outset by a consultant who knows what they are talking about.
As Neil mentioned Trusts are built-in to the legal fabric of our society since Henry II. Trusts of this type do not avoid IHT but do avoid probate. I would suggest most solicitors do not advocate Trusts since probate is their biggest income stream. Calling them a scam is a huge scare-mongering and very unworthy tactic !