The Pros and Cons of Estate Planning Trusts

The Pros and Cons of Estate Planning Trusts

By In Asset Protection, Blog On 20/09/2019

Estate planning trusts get a lot of bad press. But do they really deserve it? We take a look at the pros and cons of estate planning trusts.

What are estate planning trusts?

Estate planning trusts are also known as lifetime trusts or property protection trusts. They work by placing your property into a trust. You name trustees – such as your children – who then have control over it. The property is held in this trust until both owners have passed away, after which it is inherited by your chosen beneficiaries.

What’s wrong with estate planning trusts?

There is nothing wrong with estate planning trusts, so long as they are used correctly. It is true that they have been the source of much scandal in recent years. This is primarily because companies have mis-sold estate planning trusts to elderly people, with the promise that it will limit the cost of care home fees.

However, estate planning trusts are not quite as simplistic as that. Anyone thinking about creating one should get advice from a trusted legal professional first. Estate planning trusts do have many benefits, but they also have drawbacks. You need to be fully aware of these before committing yourself to anything.

Pros of estate planning trusts

Some of the benefits of estate planning trusts include –

Protects your property

Estate planning trusts are typically used to protect property, which for most people is their biggest asset. Understandably, you will want to safeguard this for your beneficiaries, rather than see it decimated by unforeseen costs – such as care home fees.

Estate planning trusts can limit your care home fees, although you need to create the trust in good time when you are in reasonable health. Otherwise you could be accused of the deliberate deprivation of your assets. Estate planning trusts can also protect property, should any of your beneficiaries get divorced or become bankrupt during your lifetime.

Avoids sideways disinheritance

Sideways disinheritance is when you accidentally disinherit your intended beneficiaries. This is best illustrated with a practical example. Imagine you own your property jointly with your husband or wife. You want your children to inherit your property when you die. You pass away first, and your surviving spouse goes on to remarry or falls out with your children. Consequently, the new husband or wife inherits the property, rather than your children.

Estate planning trusts ensure that your property is inherited by your chosen beneficiaries, no matter what. This provides peace of mind that your wishes are fulfilled, regardless of what happens after your death.

Prepares for the potential loss of mental capacity

Although it is hard to think about, there may come a time when you lose your mental capacity, whether through illness, old age or injury. If you do lose mental capacity, it can create difficulties for your loved ones, who do not automatically have the legal authority to manage your assets – such as your property.

There are various ways you can prepare for this, such as creating a Lasting Power of Attorney. You can also place your property into an estate planning trust, giving your trustees the ability to manage your home, should anything happen to you.

Simplifies the probate process

In some circumstances, estate planning trusts can simplify the probate process for your loved ones following your death. This is because ownership of your property has already been transferred, and so does not have to go through probate.

Cons of estate planning trusts

Some of the drawbacks of estate planning trusts include –

Deliberate deprivation of assets

Estate planning trusts get a bad reputation because people are told it will protect them against care home fees. This is not always true. If you do need to go into a care home, the local authority assesses whether or not you qualify for funding. During the means test, they look at whether you have recently transferred your property into a trust. If so, you could be accused of the deliberate deprivation of your assets.

In these situations, the local authority will assess your financial situation as though you still owned the property. This means that will not be eligible for funding after all, making the creation of an estate planning trust a futile exercise.

Tax liabilities

If you do not get proper tax advice before setting up an estate planning trust, it can have adverse tax implications – either for you or your beneficiaries. For instance, you or your loved ones could face an unexpected bill for Capital Gains Tax, Stamp Duty Land Tax, Income Tax and Inheritance Tax.

Lack of control

The point of an estate planning trust is that control is put into the hands of your trustees. Although you still have the right of occupation, relinquishing control over your home might make you feel uncomfortable.

Mark Cook Solicitors Sunderland

If you would like to find out more about estate planning trusts, please call us on 0191 567 7244 and we’ll be happy to help you. We can advise whether an estate planning trust would serve your needs, and whether there would be any adverse consequences.

If you would rather contact us online, email us on or complete a Free Online Enquiry and one of our team will be in touch with you shortly. 

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