This best practice is adhered to by many professionals in the industry, but it is becoming more common for a local authority to challenge a trust on the grounds of ‘deliberate deprivation of assets’ and succeed in getting them overturned. That’s why it’s crucial a trust is set-up with the right intention and the clients is fully clear of their commitments and the impact on surrounding relatives.
The primary goal in Estate Planning is to ensure that the solution is right for the individual client and their overall circumstances and planning well in advance to protect and support families is a critical aspect of this.
What is a Family Settlement Asset Trust (FSAT)?
This is a discretionary trust usually coupled with a life interest used to protect assets such as property, cash, bonds and so on. It is usual for the client (settlor) to reserve the right to use the assets in the trust (to continue to occupy property for example) or have income from them. In these cases, such a right of occupation or right to income is known as a Gift with Reservation of Benefit.
When is a FSAT an option?
Declining mental capacity
Over 5% of males and 7% of females are diagnosed with dementia/Alzheimer’s. Such illnesses often prevent sufferers from taking decisions due to their incapacity to do so. This means that they cannot make decisions, sign documents, maintain property etc. Property may then fall into disrepair and the individuals wellbeing can be detrimentally impacted as a result of their living conditions.
Vulnerable Adults
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. 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.
Care Fees
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.
This 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 advanced preplanning is crucial to ensuring assets pass to the people of the clients choice, most have worked hard over many years and made regular national insurance contributions to ensure they are looked after later in life, so why should they effectively be taxed again!
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.
For more details on the right Trust for your clients just contact BTWC on 01522 789473