What are Family Protection Trusts?
Family protection trusts are legal arrangements where an individual transfers assets to a trust. The trust is managed by a trustee, who is responsible for distributing the assets to the beneficiaries according to the instructions of the trust document. The beneficiaries can include the individual who created the trust (the settlor), their spouse, children, and other family members.
The main purpose of family protection trusts are to protect the assets of the settlor from potential risks, such as bankruptcy, divorce, and care fees. By transferring the assets to a trust, the settlor can ensure that they are no longer considered their property, and therefore cannot be seized by creditors or taken into account when calculating care fees.
How Do Family Protection Trusts Work?
To create a family protection trust, the settlor must first appoint a trustee who will manage the trust on their behalf. The trustee can be a professional, such as a solicitor or an accountant, or a trusted family member or friend. The settlor then transfers their assets, such as property, investments, and cash, to the trust.
The trust document sets out the terms and conditions of the trust, including who the beneficiaries are, how and when the assets will be distributed, and what happens in the event of the settlor’s death. The settlor can also include provisions in the trust document that allow them to retain some control over the assets while they are alive, such as the power to remove and replace the trustee or to receive income from the trust.
Once the trust is created, the trustee is responsible for managing the assets and distributing them to the beneficiaries according to the trust document. The beneficiaries may receive regular payments from the trust, or the trustee may distribute the assets in a lump sum.
What are the Benefits of Family Protection Trusts?
There are several benefits to creating a family protection trust, including:
- Protecting Assets from Risks: By transferring assets to a trust, the settlor can protect them from potential risks, such as bankruptcy, divorce, and care fees. This can provide peace of mind and ensure that the assets are passed on to the intended beneficiaries.
- Avoiding Probate: Assets held in a family protection trust do not form part of the settlor’s estate when they die. This means that they do not have to go through the probate process, which can be time-consuming and expensive.
- Providing for Loved Ones: A trust can ensure that the settlor’s loved ones are provided for after their death. The trustee can distribute the assets to the beneficiaries according to the settlor’s wishes, providing financial support and security.
- Tax Planning: A trust can also be used as part of a wider tax planning strategy. For example, by transferring assets to a trust, the settlor can reduce their inheritance tax liability and potentially avoid capital gains tax.
In conclusion, a family protection trust can be a useful tool for individuals who want to protect their assets and provide for their loved ones after their death. By transferring assets to a trust, the settlor can ensure that they are protected from potential risks and avoid the probate process. A family protection trust can also provide tax benefits and ensure that the settlor’s wishes are carried out after their death. However, it is important to seek professional advice before creating a family protection trust, as it can be a complex and long-term arrangement.
