In addition to the legal consequences of gifting assets, there are aspects relating to giving away property or cash that can be taken into consideration, including setting up a lifetime trust.
Lifetime trusts or asset protection trusts
The ownership of assets, such as property, antiques or other valuables, can be transferred through lifetime trusts while a person is still alive rather than giving them directly to a person and as opposed to will trusts, which only come into effect when a person dies.
Assets are placed into a lifetime trust that is legally managed by one or more appointed ‘Trustees’. Any amount of assets can be placed into a lifetime trust, but any more than £450,000 per person or £900,000 per married couple (2018-19) could mean that the assets are still included in your relative’s estate and liable for inheritance tax when they die. From 1 April 2018 you can also pass on an extra £125,000 per person tax free if what you are passing on includes your home.
If they live for more than seven years after creating the trust, assets would not form part of their estate. For more information see this page of the HMRC website.
There are several reasons why someone might want to consider a lifetime trust. For example:
Get one-to-one guidance on money matters relating to paying for care.
Call 01992 822848 (Mon-Fri, 9am-5pm) to speak to one of our experts.
- they might want to pass assets on to a minor or someone with limited mental capacity who needs the help of trustees to manage their finances
- to ‘protect’ their assets from being included in the financial assessment for care costs.
But placing assets in a trust is unlikely to help your relative to avoid care home charges. When the local authority carries out the financial assessment for care, any assets that your relative has moved into a trust could be seen as deliberate deprivation of assets (see Gifting assets: what are the rules?), meaning that the local authority might still be able to take their value into account.
There are several other things to take into account when considering a lifetime trust:
- Set up fees can be expensive.
- Your relative will lose ownership of their assets – although they may be able to maintain some level of control if they have appointed themselves as a trustee.
- Once the assets have been transferred to the trust, your relative can’t change their mind, give the money to someone else or spend it as if it was still their own. This could put them in a very vulnerable position should they need funds later on.
If your relative is thinking about setting up a lifetime trust it is vital that they seek advice from a qualified independent financial adviser with expertise in the field. For more advice on finding an IFA, see this page on the Which? website. The Society of Later Life Advisers can also offer advice.
Other things to consider
- It’s permanent: there is no going back. Once you have given a gift to someone, you can’t change your mind.
- Loss of financial security: assets might be needed for other unforeseen costs in the future. Your relative might want to move house or pay for care at home services, for example. If they have disposed of assets, they might not have money when they need it for other things.
- Loss of choice and control: reducing assets will leave your relative financially vulnerable and limit the choices they have in the future.
- Situations/relationships can change: someone that your relative trusts to ‘hold onto’ a valuable asset, or own their property ‘in name only’ and pass money to them at a later date, might not always live up to their end of the bargain.
- Divorce/bankruptcy: your relative might give their house to someone on the understanding that they can stay living there. If the person receiving the gift gets divorced or goes bankrupt, however, the house may have to be sold to form part of a divorce or bankruptcy settlement. This could leave your relative homeless.
- Capital gains tax: if your relative, or the person that they give the gift to, makes a profit from that asset they may be liable for capital gains tax. This is often the case with second homes. For information, see Capital gains tax explained on the main Which? website.
- Gifting assets: what are the rules: read our guide to gifting assets to make sure that you don’t get caught out.
- Financing a care home: explains the options for funding residential care.
- Legal transfer of property: information about the rules and legal implications of transferring property.
- Will trusts and lifetime trusts: Which? Money has more information about tax rules and and inheritance tax.
Page last reviewed: February 2017
Next review due: July 2018