The cost of care can be extremely daunting and you may be concerned about the impact this could have on your finances and your family’s inheritance.

It’s important to understand that there are many legitimate reasons to set up a trust. For example, a life interest trust in a will is a very common and well-recognised arrangement. This allows a surviving spouse or partner to remain living in the family home during their lifetime, while ensuring the property eventually passes to the children. These types of trusts are widely used.

This article focuses on a very different type of arrangement, sometimes marketed as a way to ‘protect your assets from care fees’. These are often called ‘asset protection trusts’ or ‘care fees trusts’ and can carry serious risks.

Trusts marketed as a way to avoid care fees

Some providers will promise that by setting up a trust (often charging fees of many thousands of pounds) you can exclude assets from means-testing for care fees. While these schemes may sound convincing, you should be very wary of them.

What is ‘deprivation of assets’?

If your local authority suspects that you have transferred your home or savings into a trust specifically to avoid paying for care, they may decide that this amounts to deprivation of assets.

If deprivation is found, the local authority can:

• Treat you as though you still own the asset;
• Recover the value of the asset from the person who received it;
• Initiate proceedings under the Insolvency Act 1986 to declare you bankrupt;
• Apply for a judgment debt against you in a County Court.

In some cases, you could also face large legal and/or court costs, and potentially even criminal charges.

Note: This issue does not apply to will trusts (such as life interest trusts) which only take effect after death. It arises where assets are moved into trust during your lifetime primarily to avoid care costs.

‘But the salesman says if I set it up while I’m healthy, I’ll be safe…’

This is a common sales pitch. While it may be harder for a local authority to prove intent if you set up a trust when you were fit and healthy, there is always a risk they could challenge it.

If they decide against you, you could find yourself in a worse position: your care costs will still be assessed as if you owned the assets, but you will no longer have access to them to pay your fees. The local authority may also refuse to provide financial assistance.

Other things to watch out for

Be cautious if a provider insists on also acting as trustee. When you set up a trust, you give up ownership of the assets, so the choice of trustee is critical.

• You do not have to appoint a professional trustee.
• Many people appoint a trusted family member or friend.
• For trusts that take effect in your lifetime, you can appoint yourself and your spouse/partner as trustees, but you must act in the best interests of the beneficiaries.

Whatever you do, make sure you are completely comfortable with your choice of trustee. Read our article ‘What should I look for when choosing a trustee?’

Final thoughts

Trusts can be an extremely valuable part of estate planning. Life interest will trusts, discretionary trusts for vulnerable beneficiaries, or trusts to safeguard children’s inheritance are all entirely legitimate and widely used.

What you should be very cautious about are arrangements sold specifically as a way to ‘hide’ assets from care fees assessments. These ‘asset protection’ or ‘care fees’ trusts may be challenged as deprivation of assets and leave you financially worse off.

In addition, there may be tax or other consequences of putting your assets into trust.

As you can see, this is a complicated area of law and each person’s individual circumstances will vastly differ. If you are considering setting up a trust, you should speak to a qualified advisor to discuss your specific situation and find a solution that works for you.