What does asset protection planning do?
Basically, it ensures that your assets are passed on to the people that you want them to go to, and nobody else. They will go to ‘the right hands at the right time’.
How does asset protection planning achieve that?
By using Lifetime Family Trusts for your asset protection – whether the assets involved are purely monetary and/or property. Trusts are generally legally referred to as settlements and they are a separate legal entity, so any assets gifted to a trust will fall outside of your estate after 7 years.
Why should I use asset protection planning?
- By gifting your assets to a trust they will no longer be included within your estate and therefore not liable to Inheritance Tax (after 7 years).
- After death, the assets in trust are owned and run by trustees (usually you and two other trusted people), on behalf of the beneficiaries (usually your children or grandchildren). Your children can themselves be trustees; ideally, if they are mature enough and sufficiently good with money to deal with the assets.
- The assets stay within your family. If your beneficiaries become divorced in the future, the trust would have only ‘loaned’ money to them. This means that the loan can be repaid to the trustees and therefore not form part of any divorce arrangement. If the money had been gifted directly to your children, then they would own all the assets which would mean that in the event of a divorce, there is a high possibility that it would be split with their ex-spouses.
- More and more people are becoming self-employed small business owners and running their own companies. Sadly, statistics show that 8 out of 10 of such businesses will go bust in the first 5 years. Money that’s been loaned to a person via a trust cannot form part of any creditor’s agreement and so is protected for your family
- Finally, because assets in trust do not go on to form part of your beneficiary’s estate when they eventually die, the money can be passed on to your grandchildren, also free of Inheritance Tax
- Trusts last for 80 years and there are a range of benefits depending on which you choose.
Can I set up my own trusts to help with my asset protection?
Whilst not impossible, trusts and the legal wording involved is quite a complex area and therefore we would recommend that an experienced Inheritance Tax adviser should always be employed to protect your interests.
Any questions on asset protection?
Please register for our FREE online How to avoid Inheritance Tax course