Heir-Tight Protection - The Collyer Bristow Quick Guide to Asset Protection

15 Nov 2013

Do you lie in bed worrying about how to preserve your wealth for future generations? Does the thought that your assets could be distributed as part of a divorce raise your pulse? Do you want to pass assets to your grandchildren but fear they'll be squandered by people too young to appreciate their value? Do you worry about what would happen to the family wealth if a relative were declared bankrupt? Do you have a disabled child whose future welfare is worrying you sick?

If you answer "yes" to any of these questions, the Collyer Bristow Quick Guide to Asset Protection is for you.

The Collyer Bristow Quick Guide to Asset Protection. "Asset protection":- the art of planning for the future, preserving wealth for future generations in a practical and tax efficient manner. Often a balancing act between pragmatism, family politics and tax efficiency.

I don't have many assets, why should I worry about it?

Divorce, bankruptcy or the best way to provide for a disabled child are all realistic worries in modern life and protecting heirs from themselves and others is often as important as protecting assets from the taxman. Alternatively, you may want certainty that your valuable art collection will be retained and not sold off by your heirs as soon as you're gone.

So, what do I do? Couldn't I just make gifts to people during my lifetime?

Of course! And, in fact, an outright gift of assets to your children is one of the most tax efficient ways to pass wealth down a generation - provided you survive it by seven years (and fulfil a few other criteria) - however, once you have made your gift, those assets are entirely at the mercy of your children's whim, their creditors or divorcing spouses.

Oh no! What can I do to keep my assets safe?

How you protect your assets depends upon the level of complexity you wish to introduce into your affairs…

Question 1: Do you have a Will?

With a Will, you can direct where your assets should go on death (including into a trust (see below)). Without one, the impersonal and inflexible intestacy rules step into the breach and, unless you are very fortunate, these rules are highly unlikely to deal with your estate as you would want.

Question 2: Have you considered a Trust?

Life interest trusts, discretionary trusts and disabled persons' trusts all offer alternative means to protect assets. If you wish to settle assets on trust, you would pass assets to your trustees to hold subject to the terms of the trust deed. The trustees' powers to distribute trust assets are restricted making trusts a useful way to protect assets from potential divorce, delinquency or bankruptcy. You could even be a trustee during your lifetime, allowing you to retain some control over the investment and distribution of trust assets.

But isn't there a large tax burden on trusts?

Settling large amounts on trust is less attractive than it once was because of changes to the tax law in 2008 and you should therefore take tax advice on the creation of any trust. However, trusts are still very useful especially for people not domiciled in the UK and should not be discarded from the asset protection armoury. Disabled persons' trusts (useful for those with disabled children) and trusts for "vulnerable beneficiaries" attract a beneficial tax regime if certain criteria are fulfilled on the trust's creation.

Question 3: What about gifts to charity?

Giving assets to charity can be particularly useful if you wish to preserve a collection. You might consider this type of gift if you have no heirs or are concerned that your collection will not be properly maintained by the heirs you do have. Would more complex arrangements be helpful for me? Potentially. Creating large trusts can generate hefty tax bills and some people therefore look for alternative structures to pass on wealth without ceding control. Options such as family investment companies and family limited partnerships are most appropriate where the wealth at stake is considerable. Care should be taken with any planning as tax considerations may influence the solution you opt for.

What should I do next?

Here at Collyer Bristow, we advise a variety of clients including UK and non-UK resident and domiciled individuals. If you wish to discuss protecting your assets with an expert, contact us for specialist advice.

Additional information