How does an Asset Protection Trust work?

Transferring property into an Asset Protection Trust has become increasingly popular over the years as people try to actively protect their assets and provide ease of administration for their loved ones.

How does an Asset Protection Trust work?

The owners of the property who are transferring the property into the asset protection trust are essentially known as ‘the settlors’ and they have an overall say as to what happens to the trust. On creating the trust, the settlors will usually decide who they wish to appoint as trustees of the trust. Usually, the settlors appoint themselves as trustees along with their other chosen trustees, perhaps loved ones. The settlors will also decide who they wish to benefit from the property in the fullness of time. The beneficiaries only take any entitlement at the discretion of the trustees.

The settlors will create a letter of wishes and a trust deed as to what they would like to happen to the property in the fullness of time. It must be noted that a letter of wishes is not legally binding, and the trustees who you appoint are not bound to carry out your wishes. This is why it is important that you appoint trustees who you fully trust to carry out your wishes and ensure that they will not seek to benefit themselves. If you are in any doubt, an independent trustee can be appointed who has no vested interest in the property or the proceeds of sale.

Once all trust deeds and the HM Land Registry Transfer Deed have been validly executed and dated, the trust becomes valid. An application will then be sent off to HM Land Registry to register the transfer. There is also now a requirement for trusts to be registered with HMRC. If necessary, we can deal with the registration.

If you then wish to sell the property and purchase another property, this can be done, and the new property can be held on the same terms. For example, if you downsized from a house to a bungalow and there were surplus funds due as a result of the transaction, these would be distributed in accordance with the trust.

It is important to note that transferring your property into an asset protection trust does not make the property exempt from inheritance tax. 

If would like to know more about Asset Protection Trusts and how to make one, then please get in touch to make a free, no-obligation appointment.