Philips Trust Corporation enters administration highlighting dangers of mis-sold ‘Asset Protection Trusts’

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The announcement on 12 May 2022 that the Philips Trust Corporation has gone into administration has left thousands of its customers unsure about what might happen to the assets they placed in Trust; which will often include their homes. Unfortunately, incidents like this are becoming all too common, with Universal Wealth Preservation suffering a similar fate back in 2018.

Customers who have entered into these schemes (typically known as ‘Asset Protection Trusts’ or ‘Family Protection Trusts’) are often encouraged to place assets into Trust on the back of a promise that doing so will help to protect their assets against care costs, avoid probate fees, protect children’s inheritance against divorce, or even avoid paying Inheritance Tax (IHT). In reality, these promises are rarely ever realised, and this is why:

  • Avoiding Care Costs – when a Local Authority undertakes a financial assessment for care costs, they will make enquiries as to whether you have ever owned your own home. If it is discovered that you have deliberately transferred your property to a Trust (of the kind detailed above), with the intention of avoiding paying for your own care costs, the Local Authority can essentially ignore the existence of the Trust, and assess you as though you still owned the assets within it.
  • Avoiding Probate Fees – aside from the fact that a Grant of Probate may well be needed to deal with any assets that are not held within the Trust, the current fee for a Grant of Probate in England and Wales is £273. From experience, the average fee for an Asset Protection Trust is approximately £3,000 to £5,000. You do the maths…
  • Protect children’s inheritance against divorce – this can be a benefit of the Trust (but, equally, so would a well-drafted Will) but in either instance the Family Courts have very wide powers to vary or set aside Trust arrangements that are designed to shield assets against divorce, meaning that this promise is far from a guarantee.
  • Avoid paying Inheritance Tax – these schemes are typically set up with the aim of protecting the family home, so it is often the family home which is placed in Trust. Customers are sometimes told that if they transfer their home to an Asset Protection Trust, it will fall out of their estate for IHT purposes after seven years. However, the seven-year clock does not begin ticking whilst you are benefiting from the asset held in Trust (that is, continuing to live in the family home). Even worse, placing a family home in such a Trust means that the IHT Residence Nil Rate Band cannot be claimed on death, and so the so-called Asset Protection Trust could in fact result in an IHT bill increasing!

Trusts certainly have their place as an estate planning tool, and this article is not intended to throw a blanket over the use of Trusts. However, it is situations like this that act as a stark reminder of the dangers of being mis-sold ‘Asset Protection Trusts’ from firms who are often unregulated, or who lack the expertise to provide specialist Trust advice. The purpose of this article is instead to remind customers who are concerned about any of the issues detailed above to seek independent estate planning advice from qualified, regulated and insured professionals. For legal advice, customers should be encouraged to seek advice from professionals who are regulated by the Solicitors Regulation Authority (SRA) or the Chartered Institute of Legal Executives (CILEx); or the Financial Conduct Authority (FCA) if they are looking for financial advice.  For Trust specific queries, customers could look out for lawyers who carry a STEP or SFE accreditation, as they are specialists in Trust work.

If you have been advised to set up a Trust of this kind and would like to check whether your Trust has been tailored to your needs, please do not hesitate to get in contact with our Private Client Team.  Equally, if you have been directly affected by the winding up of the Phillips Trust Corporation, and would like to discuss your options going forward, please get in touch, as we have a team of practitioners who are able to provide comprehensive advice around Trusts, and Insolvency processes.