Financial planning in later life – the dangers of not getting the proper advice

We regularly see reports in the media about elderly people falling victims to financial scams and unfortunately, have many clients coming to us for legal advice after having fallen foul to these.

For example, details were recently uncovered of a multi-million pound scandal where unscrupulous legal firms had been convincing customers to transfer their properties and savings into trusts that claimed to shield their wealth from care home fees and inheritance tax, when this was not the case, leaving thousands of families in a state of financial uncertainty when all their parents were trying to do was protect their inheritance.

The Universal Wealth Preservation (UWP) “fraud” saga is perhaps the best known in recent years. The company held seminars encouraging clients to transfer the ownership of their homes and savings into trusts set up by UWP to protect their assets from future inheritance tax and/or care home fees. The company directors appointed themselves as executors to their clients’ wills and named themselves as trustees, all the while continuing to charge for their ongoing services.

Instead of providing the protection that had been promised, their clients have been left in an untenable situation as their homes are now registered in the names of the trustees of these questionable trusts. The company has since gone under and Steven Long, Director of Universal Wealth Preservation, received a prison sentence for failing to comply with an order to track down a missing £25 million. It’s thought that up to 8,000 people across the country were affected by the scam.

As with all things relating to estate planning and inheritance tax, this is a complex situation and following unprofessional advice can be extremely damaging. The Solicitors Regulation Authority is ready to take action against advisers who have exploited people’s uncertainty and fears but where does that leave older people who want to get their affairs in order?

What is an asset protection trust?

They are created for many reasons, to protect assets from inheritance tax, and to provide security for future generations but not necessarily to protect assets from care home fees. However, it is always worth getting a legal assessment to get a guide on what is the best course of action for your estate.

Although these trusts are a relatively simple concept there are several implications, both positive and negative, that you need to be aware of before deciding to invest in one.

When you put assets into these trusts, you are essentially taking them away from your estate. There are many benefits to doing this, including:

• You may avoid the need to sell any assets (you would have otherwise owned) for care fees (but this is not guaranteed).
• The asset may not be taken into account if you have to undergo means-testing for benefits
• It may prevent beneficiaries from squandering money as the Trustees control the assets and distributions from the Trust.
• It may protect assets in the event of one of more of the beneficiaries getting divorced or going bankrupt to the extent that the assets belong to the trust.
• It may reduce delays in obtaining probate as the trust will not require probate to deal with the trust assets
• It may reduce your estate’s liability to pay inheritance tax after a specific period of time.

On the other hand, if you end up needing residential care, the local authority may still take the value of your property into account when considering your assets if they believe there has been a deliberate deprivation of assets. There is no time limit in which the local authority to look back at the purpose of the trust and consider it a deliberate deprivation. This is similarly the case in relation to other means-tested benefits.

In putting your assets into the trust, you will be giving up your full legal entitlement to the assets. If the asset transferred is your home, there may be provisions in the Trust Deed to stop the Trustees from selling the home, for example, without your consent. But disagreements are common, even among the closest-knit families, so careful consideration needs to be made before putting your home into the trust. Further, if you continue to live in the property the value of the property is still likely to be taken into account when calculating inheritance tax payable by your estate. There are complex inheritance tax rules around gifting and continuing to benefit from an asset and therefore these need careful consideration before going ahead.

Further, your choice of Trustees should not be underestimated as often they will be the ones in control.

Is the scheme you are thinking of investing in too good to be true?

If an adviser is making you all sorts of promises that sound unrealistic and too good to be true, you’ll usually find that it is.

It is really important that you understand all of the information that is given to you, and make sure you don’t sign any documents if you are unsure. It’s always best to ask for clarification or a second opinion if you feel any type of uncertainty.

How do I make sure I’m talking to a legal professional?

It’s important to make sure you are taking advice from someone with the right level of expertise and experience. You can find an expert who specialises in this area of the law by making sure they have additional accreditation from SFE (Solicitors for the Elderly) or STEP (The Society of Trust and Estate Practitioners), or preferably both. This shows the solicitor has undertaken additional learning and exams in private client and elder client law and so can provide independent, confidential advice which is in the best interests of older or vulnerable clients whilst having a more in depth knowledge regarding the tax and trust aspects which are required. Full STEP members will have the letters TEP in their email signature after their name, so it’s good to be able to spot this.

It’s worth noting that fully accredited members of SFE must have at least three years of experience under their belt and spend at least half of their time in this area of the law.  It’s also worth finding out the level of experience your solicitor has in this area, you may wish to ask if they have had other cases that are similar to yours.

You can find an SFE accredited solicitor here.

Solicitors are regulated by the Solicitors Regulation Authority and are required to have insurance if things go wrong. Whilst there are many qualified legal advisors in unregulated firms, they are not required to have insurance as a standard.

Get in touch

If you would like to talk to one of our friendly, specialist team at Harding Evans concerning asset protection trusts, we have years of experience and can talk you through the whole process. Get in contact with us at hello@hevans.com or call us on 01633 244233 or 029 2267 6818.