What is Asset Protection Trust in the UK – Family Asset Protection Trust

  • November 10, 2023
  • December 15, 2023
  • Shaz Nawaz
  • 14 min read

Most people are searching for methods to manage their estate. They want to leave behind wealth for their children and loved ones. It is important to protect family assets during your lifetime. You can do so through an asset protection trust. Therefore, you should understand how it works and its pros and cons. This guide will cover everything from what is asset protection trust to its alternatives.

First, let’s discuss the definition of an asset protection trust. Then, we can move on to its advantages and disadvantages.

What is Asset Protection Trust in the UK?

If you want to manage your estate to ensure that your assets pass on to the right people when you pass away, then you should use an asset protection trust.

Such a trust is set up during your lifetime. After your passing, the beneficiaries immediately receive the assets that were in the trust. An asset protection trust is a form of life interest trust. However, it overlaps with trust will. This is because the trust is named in your will.

People with a high net worth can use asset protection trust to secure their estate planning efforts.

The purpose of this trust is to preserve the value of your assets for your future generations. This includes assets such as investments and real estate. Other property is also moved into the trust to make sure they are safe. This way, creditors and other claimants cannot get to them.

The settlor, or the person who creates the trust, can appoint trustees. Or a solicitor or financial advisor can nominate them. It is the trustee’s responsibility to manage and protect the assets. They must do so in accordance with the guidelines of the trust deed.

You can have peace of mind that you will not lose your expensive items because of any unforeseen events.

How Does an Asset Protection Trust Work

How Does an Asset Protection Trust Work?

Through a trust, you can split an asset’s legal ownership from its enjoyment. The legal ownership belongs to the trustees, whereas the beneficiaries enjoy the benefit. By moving your assets into this type of trust, they are no longer a part of your estate. Even after your passing, this form of ownership continues to go on. Then, what is asset protection trust?

Why is as Asset Protection Necessary?

If you want to make sure that your family benefits from your wealth, then you should protect family assets. This includes protecting your financial security so that it is not compromised by any unforeseeable expenses. Or any changes in your circumstances. To do so, you need to set up asset protection trusts. Also, you must create saving plans and make wise investment decisions.

This also includes making sure that you have sufficient insurance coverage for you and your family. In case of any unforeseen scenario, this is helpful in covering any losses. For example, illness or death.

Furthermore, there is protection against inheritance tax. Your assets are going to transfer in the right way to the right people.

You can make sure that your family benefits from your money by forming a plan and comprehending IHT implications. To make your wishes for the distribution of your estate legally binding, you should set up a will.

It is important to protect your family’s assets as secures the financial stability and future of your family. So, what is asset protection trust?

Ways that Family Assets are Distributed if there is no Asset Protection Trust

After you pass away, there are several ways that your wealth can wear down. This means that the distribution of your assets to your loved ones is not as per your wants. Following are the ways this can happen:

  • If your spouse decides to get married again, then assets that they inherit pass onto their new family. It does not pass on to your children.
  • Your spouse declares bankruptcy, so they sell their assets to pay off debts.
  • Family members challenge the will through an application.
  • Instead of your children, in-laws inherit the assets. For example, following a divorce.
  • Long-term’s fees is assessed from the total assets in case your spouse must move into a care home. This means that money does not pass onto your children and any other beneficiaries.
What is the Cost of an Asset Protection Trust

What is the Cost of an Asset Protection Trust?

To set up a trust, you require asset protection solicitors on an adviser.

Depending on the complications and value of the assets you are going to transfer into the trust, the cost varies. Furthermore, tax liability of your assets and the solicitors you select are also factors. However, for your information, lawyers usually charge between £2500 and £5000. This is the amount for setting up the trust. You may need to pay conveyance fees if you want to move money into and out of the trust.

If you want to get more information and help, you should reach out to the solicitor’s practice. They will evaluate whether this arrangement is right for you and your family. Therefore, what is asset protection trust?

Who Requires an Asset Protection Trust in the UK?

To set up asset protection trust, you simply require the mental capacity. If you want to set up a more specific inheritance system, then this trust is useful to you.

Which Assets Can an Asset Protection Trust Hold?

Usually, people put their property in this trust. If they jointly own a home, then they put a share of it in the trust. For means-testing, capital worth less than £14,250 is not considerable. If you have any capital above this amount, then it is worth moving into the trust.

You should remain cautious about moving assets into the trust on which capital gains tax applies. Also, lifetime inheritance tax applies if you move assets above your Nil Rate Band into the trust.

It is best to seek legal advice regarding tax implications of family trusts. Or you can reach out to asset protection solicitors. They will help you comprehend the impact. Thus, what is asset protection trust?

What About Long-Term Care Home Fees?

By placing assets in a trust, you separate them from the remaining assets of your surviving spouse.

Hence, there is no inclusion of the assets in the trust when the time comes for the local authority to calculate the amount of long-term care fees payable. As a result, it is more probable that the surviving partner will receive more state benefits.

Nevertheless, it is not possible for you to set up a trust to escape paying the local authority care costs. This is a deliberate deprivation of assets.

If the local authority has a suspicion that before setting up the trust, it was reasonably predictable that long-term care was necessary, then they widely decide what to do with the trust. Foreseeable reasoning is if your health or your spouse’s health was already failing prior to setting up the trust.

They have the power to access the assets in the trust and assess their value.

Therefore, it is possible that you need to sell your house. So, what is asset protection trust?

What are the Pros of an Asset Protection Trust?

The good news is that there are plenty of advantages of setting up this kind of arrangement:

  • The administration of the property is a quick process as there is a need for probate for assets in the trust. Furthermore, after your passing, the grant of probate fees is preventable.
  • You can do whatever you want with the assets during your lifetime.
  • Assets that pass on directly to your spouse are instead under the control of settlors as they manage inheritance procedures. They decide who gets to inherit joint assets.
  • For the individual, it is a potential source of income.
  • You have the right to appoint trustees who will oversee what happens. This means that you can make sure that it is according to your wants. Also, you get to choose the estate’s beneficiary.
  • There are tax advantages to having a trust. If the trust value is below the threshold, then you can benefit from inheritance tax exemption. Whereas gifting to your children is more expensive. There is less income tax to pay on the money you generate from investment of trust funds.
  • You can avoid care costs. Please note that the purpose of setting up your trust cannot be deprivation of assets only.
  • While passing your family wealth onto your children, you can still make sure that your spouse continues to live in the family house after your passing.
What are the Cons of an Asset Protection Trust

What are the Cons of an Asset Protection Trust?

Although you may think that asset protection trusts are the best way to manage estate planning, you should remain cautious. According to Age UK, they are a ‘worthless piece of paper’. There are several drawbacks to this scheme:

  • If there is a deliberate deprivation of assets to escape care home fees, then local authorities can reverse any gifts into trusts legally. Usually, there is no legitimate reason for creating the trust. They simply create it to avoid care home fees. Court proceeds can consume time and cost you a lot.
  • To set up the trust and transfer payments into it, you need to pay. 
  • It is unlikely that you can prevent your executors from paying for probate.
  • Now, there are restrictions on companies to make misleading claims regarding the benefits of lifetime trusts. They cannot break the rules. It is difficult to navigate this specific area. This is because solicitors do not care about the potential consequences, they just want to sell this product.
  • Your children may end up paying large amounts of IHT if you do not set it up properly.

What is a Family Asset Protection Trust in the UK?

Also called a settlor-interested lifetime discretionary trust, a family asset protection trust is a trust fund that you add to during your lifetime. The law deems the ownership of everything in the trust as the trust’s and not as yours. Once you pass away, the beneficiaries receive the contents of the trust. However, the value of the trust cannot pay for residential care or probate costs. So, what is asset protection trust?

How Much Money Can Go into a Family Protection Trust?

There is no limit to the amount of money you can move into a family protection trust. Nevertheless, there is a threshold of £325,000. After which, an immediate lifetime inheritance tax charge is applicable. On the sum of investments £325,000, there is a 20% charge,

During your lifetime, any payments you make from the trust have income tax implications that you should consider.

Who Can Qualify as a Trustee?

You have the right to appoint any person or people that you trust as a trustee. They will handle all your affairs for you. In most cases, it is a family member or anyone you are close to. You also have some control over the trust as you are also a trustee. Additionally, you have the option to appoint solicitors as trustees. During your lifetime, they will sort out wills and vote with you. They will also provide you with information on the law.

You should appoint two solicitors. This is essential, as they do not have individual control. Make sure that solicitor’s regulation authority regulates them. Thus, what is asset protection trust?

Who Can you Make as Beneficiaries of the Trust?

It is up to you who you make a beneficiary of your trust. Often, people choose their children.

Suppose you have a joint tenancy of your home, and you are married. In this scenario, you have the option to leave your share of the house to your children or anyone else. Also, you can make sure that your spouse will still live on this property for their lifetime.

What Happens if You Change your Mind Regarding the Trust?

At any time, you have the right to move your assets into and out of the trust. Moreover, you can modify your will if you change your mind. Please note that moving assets involve a conveyancing fee. Besides this, you can do as you wish with the assets and your will.

What if you Already Set up an Asset Protection Trust That May Be Illegitimate?

To deal with providers who mislead clients over the advantages of assets protection trusts, there are attempts by recent legislation. Under consumer protection, victims can get protection against unfair trading regulations. This is in case of unfair commercial practices.

Suppose a solicitor misleads you into a decision you would not make otherwise. This is an unfair practice. If you think that you do not have the right information, you should reach out to a solicitor. They will guide you through setting up the trust. So, what is asset protection trust?

Alternatives to an Asset Protection Trust

You can find other alternatives to safeguard your assets and for inheritance tax purposes. They all have their own benefits and drawbacks. To find out the best course of action for your estate, you should get a legal assessment.

There are other alternative types of arrangements you can make both for inheritance tax purposes and to safeguard your assets, all of which have pros and cons. It is worth getting a legal assessment to get a guide on what is the best course of action for your estate. They include the following:

  • Instead of a lifetime trust, you can use a will trust. Only after your passing do the trusts in a will come into effect. A property protection trust is the most common will trust. Through this method, you leave your share of the property to the beneficiaries. However, your spouse can still live in the family home.
  • Therefore, against local authority assessments, there is still protection. Yet, the risks of tax consequences are less. There is a requirement for couples to rewrite their wills. It is more legitimate. By rewriting your wills, you both become tenants in common with your house. As a result, each of you owns a share of the property rather than owning it jointly.
  • You can leave your property to your children as a gift. It is a more straightforward alternative. Bear in mind that there are other risks to this option. For example, your child gets a divorce or files for bankruptcy. In this case, to pay the debts, it is possible that selling your assets, including your family home, is necessary. Furthermore, you children will end up paying IHT in this gift.


To conclude, anyone who wants to manage their estate should consider setting up a trust. An asset protection trust secures the financial stability of your family. It has plenty of benefits. However, it comes with its own drawbacks. Therefore, you should seek legal advice before setting up a trust. Furthermore, you should know the costs of a trust and the conveyancing fees for moving money in and out of the trust. An asset protection trust is a great option for those who have a high net worth and wish to leave behind their wealth for their children.

To conclude, as an Airbnb host, you may need to report your income. It is all dependent upon your circumstances and the amount of income you earn per year. If it crosses the specific threshold, then you must report it and pay tax. There is no need to stress, as you can reduce your tax liability with various methods. Furthermore, there are plenty of advantages to running an Airbnb business in the UK. It is ideal to reach out for expert advice before deciding to go down this road.

Recent Posts

Leave a Reply

Your email address will not be published. Required fields are marked *