A fool's errand?

It was with disappointment, but not surprise, that I read that eight members of a 'dubious' estate planning company were recently sentenced for offences including fraudulent trading.

The eight individuals ran an organisation under various trading names, purportedly carrying out estate planning activities including drafting wills, lasting powers of attorney and executing trusts intended to avoid paying care home fees.

Over the course of two years, the group took more than £250,000 in upfront fees and only delivered on a handful of products.

They posed as qualified legal advisers and highlighted their offering of asset protection trusts, also referred to as family protection trusts or, estate preservation trusts. While it was an offence for these individuals to execute trust arrangements, asset protection trusts are regularly offered by some sections of the industry. However their effectiveness is questionable.

Elderly clients were subjected to high pressure tactics in order to make them part with their money. Clients were told that the seller's own parents would endorse the arrangements or had already entered into it, along with horror stories of people who had lost their home as a result of having to pay care home fees.

This latter argument is particularly important, as asset protection trusts are often sold as a means of avoiding care home fees. The proposal is that an individual's property is wrapped up within a trust and placed away from their control, so that the property is not taken into consideration by the local authority when assessing the individual's liability for fees.

Deliberate deprivation

It is quite reasonable to expect that individuals will place property and assets in trust for their families where the need arises. The difficulty with these arrangements is that the focal sales point of asset protection trusts is for them to be used as a method of avoiding care home fees, which makes them highly likely to fall within the rules surrounding deliberate deprivation of capital.

The Care and Support Statutory Guidance, which accompanies the Care Act 2014 and replaces the Charging for Residential Accommodation Guidelines, refers to 'deprivation of assets and debts' at chapter eight.

It states that, where a person may have tried to deliberately avoid paying for care and support costs through depriving themselves of assets, the local authority may charge the person as if they still possessed the asset, or seek to recover the lost income from the person to whom the asset has been transferred.

These proceedings may include a local authority using the powers conferred by the Care Act to recover a debt, including proceedings in the County Court.

For a long time now, local authorities have considered the use of a third party charging orders to recover the cost of accrued care home fees, where assets or income are believed to have been applied elsewhere or, misapplied by the patient or their attorney.

Section 70 of the Care Act now makes specific provision for local authorities to recover the full market value of an asset, transferred at an under value from the individual to whom the asset has been transferred.

This is a step beyond the deemed or notional capital applied to individuals who had deliberately deprived themselves of assets under the old rules. Furthermore section 69 of the Act makes it a requirement that a local authority offer a deferred payment agreement to meet a debt, in specified circumstances.

With increased attention being paid to asset protection trusts and attempts to avoid paying care home fees, local authorities are now hyper-vigilant and are unlikely to be convinced by such arrangements.

These individuals were prosecuted for forcing elderly and vulnerable adults in to paying money for a product that they ultimately did not deliver. Whether the asset protection trusts they attempted to sell would have protected the value of those clients' homes from care home fees is an entirely different matter. 

Leah Steele is a solicitor at Hugh James

She writes the regular vulnerable clients comment in Private Client Adviser