Many of you will have seen the recent article from the BBC regarding the use of Trusts for the primary reason of avoiding care fees. This relates to a particular company actively promoting a specific type of trust advertised explicitly for the avoidance of care fees.
As experienced and qualified practitioners will advise, if there is clear evidence that the primary motivation for setting up a trust is for the avoidance of care fees, this would be challenged by a local authority under the grounds of 'deliberate deprivation of assets' and in all likelihood be overturned. The primary goal in Estate Planning is to ensure that the solution is right for the individual client and their overall circumstances. It's also critical to ensure that planning is in place well in advance to protect and support families' futures.
What is a Family Settlement Asset Trust (FSAT)?
This is a discretionary trust usually coupled with a life interest used to protect assets which may be property, cash, bonds and so on. It is usual for the settlors to reserve the right to use the assets (for example, occupy property) or have income from them. In these cases, such a right of occupation or right to income is know as a Gift with Reservation of Benefit.
Why could an FSAT as a potential option for you and your family?
Over 5% of males and 7% of females are diagnosed with dementia/Alzheimer’s
These illnesses prevent sufferers from taking decisions. They lose capacity. This means that they cannot make decisions, sign documents, maintain property etc. Property may fall into disrepair and the individuals wellbeing can be detrimentally impacted as a result of their living conditions.
When a spouse dies, the survivor may become vulnerable following the bereavement of their life partner. They may struggle to make decisions alone that previously they would have taken jointly. However, with an FSAT the trustees can take decisions with regard to the property, its maintenance and repairs. The survivor is not alone.
The Big Spender
A surviving spouse may be reckless with money and indifferent to property up keep. In extreme cases they may get into debt or even bankruptcy and the family’s assets are swallowed up by creditors. With an FSAT, the assets are ring fenced within the Trust.
The 2nd Marriage
The surviving spouse may be persuaded to make a new will or may not even get round to making a new will on re-marriage at all. This means assets may go to the new spouse without taking into account the interests of the previous family. But with an FSAT, the re-marriage of a surviving spouse is irrelevant, the assets are protected and sideways dis-inheritance is avoided.
If a surviving spouse ultimately goes into care, the Trustees could opt to rent out the property and utilise the rental income to top up care fees providing more control to the family regarding the standards of care their loved one will receive.
The last point is a critical one. The issue is not the avoidance of care fees but the management of care fees contributions, ensuring families remain in control of assets and are able to utilise them in the future should they choose and need to.
The creation of any Trust requires careful consideration and Trustees should be aware of their duties and obligations regarding the careful, but not necessarily burdensome, administration of the Trust. This type of Trust goes hand in hand with other Estate Planning solutions such as Lasting Powers of Attorney. The FSAT is designed to protect the property during the settlors lifetime. The LPA is designed to protect the individual during their lifetime.
Not all Estate Planning takes effect upon death and lifetime planning can have a significant impact on the wellbeing of loved ones lives whilst they’re still with us.
If you would like to know more, get in touch