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What does “asset protection” mean and do you really need it in your Will?

Couple with a nice house laughing because they have asset protection
AUTHOR: Graham Southorn

Asset protection means keeping some control over what happens to assets, such as your house, after you die.

If you make a simple Will, money and assets go directly to your beneficiaries (the people you named in your Will). When the estate is settled, the money will go straight into their bank accounts.

This might not be a good idea.

Since none of us knows when we are going to pass away, it may not be a good time for your beneficiaries to inherit. Here are some reasons why not:

  • They might be going through a divorce and not want to receive money that could go to their ex-spouse.
  • They might be on means-tested state benefits. Inheriting money could wipe out those benefits.
  • Similarly, they might just be having problems with money – a business has gone bankrupt, for example.
  • Or they might have the opposite problem – they could be well-off already. Inheriting from you could mean they pay more inheritance tax and your grandchildren inherit less.
  • Your children might be living abroad. Some countries have a “double-taxation” treaty with the UK, so that you don’t pay inheritance tax twice. Some don’t, however.

And what about your spouse? In the future, your spouse could remarry. If they do, their existing Will would immediately be rendered null and void.

Or they might just meet a new partner and wish to leave them something in their new Will. Either way, children from a previous relationship could end up disinherited.

That’s why it’s a good idea to consider asset protection in your estate planning.

How does asset protection work?

Asset protection involves using a Trust.

A Trust is an arrangement whereby you don’t leave money directly to someone else. Effectively, this involves giving it to two or more people to look after. The law on this comes from the Trustee Act 1925.

The people who look after the Trust are called the trustees. Commonly, people choose spouses, family members and friends to be trustees. If you wish, you can include a professional executor such as a solicitor or accountant as a trustee.

The trustees have to make joint decisions and write down what they’ve decided. In law, they have to make decisions that are in the best interests of the beneficiaries. This is what provides the asset protection.

So for example, if one of the beneficiaries is an adult child who is going through a divorce, the trustees could hold back their inheritance until the divorce has been finalised. That way, their inheritance would not be lost in a divorce settlement.

Asset protection shown by a wooden house model with padlock
An asset protection trusts secures your property

What types of Trust are there?

The purpose of Trusts is asset protection. There are lots of different types of Trust but the main distinction is:

  • Trusts in your Will
  • Trusts you set up in your lifetime

If you have a Trust in your Will, assets only go into it after your death, when your Will is read. This means that there is no protection whilst you are still alive.

A lifetime Trust is more expensive initially but there is usually no further cost. And although there is a little bit of admin involved, the asset protection applies straight away.

How do I get a Trust?

Many Will Writers provide both Trusts for asset protection in Wills and lifetime Trusts. Solicitors who offers estate planning should also be able to provide both.

Trusts are highly recommended for most people because they help to preserve assets from whatever life throws at you.

When it comes to Wills, there are lots of different types, ranging from Trusts that protect your property and give someone a right to live in it to discretionary Trusts that give the trustees maximum flexibility.

However, they may not be for everyone. And since there are lots of different types, it’s best to have a conversation with a Will Writer or solicitor to find out if it’s right for you.

To book a free callback to discuss your needs, click the button below.

For further information, download free factsheets on Wills, Trusts, Inheritance Tax, Lasting Power of Attorney and more.

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The information contained in these articles is for general interest purposes only. We take every precaution to ensure that the information is correct at the time of publishing but errors can occur. Given the changing nature of laws, rules and regulations, there may be omissions or inaccuracies in the information. Bristol Wills & Estate Planning Ltd is not responsible for any errors or omissions or for any results obtained from the use of this information. You should never rely on the information in these articles as a substitute for professional legal advice, whether from Bristol Wills & Estate Planning or any other legal service or professional.

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