Asset Protection for Commercial Property
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What is Asset protection for Property?
Asset protection is primarily about planning now to protect for later and getting your assets and income in order.
If you don't make plans, your assets are likely to be at risk of exposure to financial predators. Your assets might be at risk as a result of commercial creditors, bankruptcy, divorce or the taxman.
Value of your assets
We know that the value of your assets will always be subject to economic fluctuations and market influences, however, in most cases, you can take protective steps to shelter your assets from these financial predators. In reality, there are many and varied needs for asset protection. There is no need to worry because there are many tools available to assist you.
Whatever you choose to do, it will need prudent consideration and this, of course, will ensure you are effectively mitigating risk while at the same time remaining compliant with current tax and other rules regulatory rules.
You might decide to protect your assets and wealth from inheritance tax. Some businesses will hold shares that are due to family members in a trust, and this is ideal for protecting them from their children entering into a marriage that may not last.
Asset protection strategies
All asset protection strategies should take into account a range of potential risks that might arise. These risks could include inheritance tax, capital gains tax, professional negligence claims, ex-spouses and bankruptcy.
While keeping these risks in mind, there are steps you can take for a practical approach to asset protection. To make the right decision, you need to be extremely clear on your end goal. Future planning is vital.
Life Interest Trust
One arrangement you can choose is a Trust; this is an arrangement in which an individual can transfer assets to one or more people these are known as trustees, who will hold it for the benefit of another person or group of people, these are the beneficiaries. One of the most common forms of Family Trust in England and Wales is called a Life Interest Trust.
If you transfer your property into a Life Interest Trust, you give yourself a right to live in the property for the rest of your life. You would, of course, be entitled to any income from the Trust but your specified beneficiaries would be the ultimate beneficiaries of the capital when you die.
A Life Interest Trust will, therefore, allow you to retain some control and protect your occupation of the property. If a local authority is carrying out a financial assessment for your care fees, they should disregard and ignore some assets, one of these is the value of a right under a Life Interest Trust.
It is prudent to create the Trust in your lifetime; this will save your loved ones from having to go through the legal procedures of probate when you die, this would, of course, depend on what other assets you had in place at the date of your demise. A Trust, however, does not form any protection from UK Inheritance Tax.
If your intentions when setting up a Trust to avoid care fees, you might still be deemed as still owning the assets when the Local Authority is assessing your eligibility for funding.
You could decide to be a trustee of the Trust that you have created. You can choose to control the transfer of your assets during your lifetime, with protection from threats such as divorce and bankruptcy.
One way to ensure your property passes to the person or persons of your choice is for the property to be transferred outright or into joint names. However, there are some risks involved with this choice, and you should offer them careful consideration.
It might be that the recipient fails to support you after you have gifted them your property. This decision could leave you in a vulnerable position and at risk of losing your home.
If the beneficiary of your property is your spouse, and you got divorced. Your spouses share of the property would be considered as part of their assets. These assets are taken into account in any financial settlement.
Another point to consider is if the recipient of your assets is declared bankrupt their trustee in bankruptcy proceedings could claim against their share of the property when selling assets to pay their creditors monies owed.
If the recipient of your property dies, then the share of your property that you gifted them, would form part of their estate. This asset gifted to them will pass under their Will if no Will exists then it would pass to the next of kin under the intestacy law.
It would be best if you also consider any tax consequences for both yourself making the gift and also the recipient.
Joint Tenancy Severance
The majority of couples own property jointly. What this means is: if one of you died, the property would automatically pass to the other, regardless of what is in any Will. You can leave your respective share of the property under a Will to someone else, perhaps your children.
If you decide to do this, you must change the joint ownership by way of Severance of Joint Tenancy so that you become tenants in common. Each of you would then have your specified share of the property which you can, for example, leave to your children in your Will.
When you sever the joint tenancy and make a Will, you are ensuring that your children receive a share of the family home on the first death.
If the surviving partner has to go into full-time residential care, the share of the property given away should not be treated as capital for a Local Authority financial assessment as they no longer own it.
You should also know that the Local Authority cannot use the family home as capital while there is a surviving partner still living in the property.
Deprivation of Assets
When somebody needs residential or nursing home care in England or Wales, their Local Authority will carry out a financial assessment to calculate how much they should pay towards their care home fees. There are, of course, stringent rules regarding deliberate Deprivation of Assets where a person's objective is to obtain assistance with their care fees.
If you dispose of assets and you intend to receive help with care fees, then you can be assessed as if you still own the asset. It is therefore imperative that legal advice is taken before any steps to transfer property, whether as an outright gift or as a Trust.
If it is believed by the Local Authority that you gave your assets away to avoid the payment of care fees, they may decide that you have deprived yourself of assets and calculate your ability to pay as if you still owned them. It is usually the motive and intention behind making the gift that is the essential factor.
We strongly advise that before you make any decisions with regards to your property or assets, you seek advice fro a professional.
Please note that all information on this page does not provide a complete or authoritative statement of the law. It is always a good idea to plan for the future, even if you eventually decide a trust is not right for you.
If you transfer assets to structures for asset protection purposes, it is likely in most cases to have broader tax implications. These implications could be, triggering the liability to capital gains tax and inheritance tax, or it could result in the loss of valuable reliefs that previously existed.
This decision may not be of concern where asset protection is your primary driver over tax-efficiency. However, you must take these into account as part of your informed decision-making process.
Listed below are some of the benefits of a Life Interest Trust ( also known as Asset Protection Trusts, APT).
- You do not require probate for the assets in the Asset Protection Trusts, which could save your family money in probate fees.
- You can pass the property on after your death without delay.
- Experienced solicitors to defend the Trust in the event of a local authority challenge.
- Assets can be dealt with by those you trust in the event of you being incapacitated.
- You retain control of your assets until your death or incapacity.
- You could avoid losing your home to pay care fee charges.
- You control who inherits joint Assets in the fact of the survivor of you remarrying.
- Trusts are a commonly used and flexible tool for asset protection purposes.
Various types of Trust exist, and it will be essential to consider the benefits of each Trust against your objectives to meet your needs best.
Asset Protection is all about planning and protecting your personal and business assets from the threat of business liabilities, such as debt obligations, claims of creditors, claims for damages, liability, etc. It uses legal strategies like partnerships, corporations and trusts to deter any potential claimants or help prevent seizure of assets after a judgement.
Any asset protection strategy you choose should take account of a range of potential risks, from the foreseeable and inevitable through to the unexpected circumstances.
If you want advice about Asset Protection for Commercial Property contact our expert today. Call our RICS Expert Witness today.