John Hopkins worked hard all his life as a commercial salesman and wanted to make sure he had something to pass on to his loved ones to enjoy.
Through careful saving, he managed to set aside a small nest egg in addition to the family home in Exmouth where he had lived for 30 years.
So, in 2019, John, a widower, approached an estate planner for help rewriting his will. He also asked if there were any other steps he should consider to secure his savings – then worth £40,000 – and his home, which was valued at £280,000.
John was sold a Family Protection Trust at a cost of £3,500, which he believed would protect his wealth from being ravaged by care fees, should he need it in later life, and from inheritance tax. These trusts are legal arrangements that allow you to remove money or assets from your estate and hold it for other people – typically family members.
But instead, when John died in 2023, the trust meant his family faced a bill of more than £50,000 in tax and extra costs. Without the trust, his family would not have paid a single penny.
What’s more, the sale of his home was delayed by 18 months because it was held in the trust, and this had to be unravelled first.
John’s son and daughter-in-law, Andrew and Lucy Hopkins, only discovered he had set up the trust when he died and they started to wind up his estate.
Lucy, 60, a retired civil servant, says had the family known John had taken out the trust while he was still alive, they would have encouraged him to unwind it.
The late John Hopkins with his daughter-in-law Lucy, who says he was ‘such a lovely man and he always wanted to do the right thing’
She says: ‘I feel really sad for my father-in-law, because if he had known what has happened since his passing he would have been absolutely mortified.
‘He was such a lovely man and he always wanted to do the right thing. These salespeople offer people the world, but in fact the trusts often don’t mean protection at all.
‘I hope by sharing our situation I can help dissuade people from taking out one of these trusts without doing their due diligence.’
As care home fees and inheritance tax bills escalate, growing numbers of people are being persuaded to take out such trusts, which they believe offer a neat solution.
Sometimes called Family Protection Trusts or Asset Preservation Trusts, they are often marketed as a way to shield assets for loved ones.
As they remove assets from your estate, they can be effective in some cases for passing on wealth to future generations and keeping inheritance tax bills in check.
However, they are often misused, offer no real protection and can backfire by triggering unintended legal and tax consequences – exposing families to lasting financial and legal harm.
The Association of Lifetime Lawyers, a body representing accredited lawyers, reports that three-quarters of its members say they have had to deal with multiple clients who have been mis-sold these schemes.
Trusts – sometimes called Family Protection Trusts or Asset Preservation Trusts – are often marketed as a way to shield assets for loved ones
Most victims paid between £3,000 and £5,000 to have complex legal products drawn up, often when they didn’t fully understand what they were signing up for. In many cases they offered no legal protection and involved unregulated providers.
Kelly Greig, a tax and trust specialist who campaigns about the mis-selling of trusts, says the problem is growing because some firms are using social media to target people worried about leaving an inheritance to their children.
‘They have a nice brochure, and may even come to your home and have a cup of tea with you,’ she says. ‘They prey on vulnerable people. They often ask, “How do you think your children would feel, knowing that all of your savings have been lost to care fees, and you’ve left them nothing. Don’t you want to protect your children’s inheritance?”
‘It’s all that kind of rhetoric that makes people feel incredibly guilty if they don’t sign on the dotted line, and they can feel very pressured to sign in that meeting without properly being able to think it through.’
When they do work – and when they don’t
Around 121,000 trusts were set up last year, official data from HM Revenue & Customs shows, up 5 per cent on the year before. They can be useful in the right circumstances.
Greig says, for example, that trusts can help protect part of a home from being used to pay for care. These are usually set up in a will and activated on the first spouse’s death.
Under this arrangement, when one spouse dies, their share of the home is placed into trust, while the surviving spouse can continue living there. Because that share never belonged to the surviving spouse, Greig says it is usually ring-fenced if they later need care.
‘If you put your half-share of your home into trust when you die, so that it doesn’t get included in your spouse’s estate, that should protect your half of the home from potentially being used for care fees if your spouse needs it,’ she adds.
What doesn’t work is where a home is put into a trust during the owner’s lifetime to avoid having to pay for potential care fees further down the line.
That is because councils have controls in place specifically to stop people from giving away wealth to avoid having to pay for their care.
Greig says: ‘Because you owned that property and have given it away to a trust, the council may treat that as a deliberate deprivation of assets.
‘Then it gets more complicated, because not only may it fail for care-fee purposes, there can also be tax implications that are often not properly explained by advisers selling these trusts.
‘I do a lot of pro bono work fixing these because I just feel sorry for people that have got scammed into this rubbish, quite frankly. People have often paid for a trust that is not designed for them or suitable.’
Where a property is held in trust, a tax is charged every ten years at 6 per cent of its value over the inheritance tax allowance of £325,000. There may also be capital gains tax to pay when the property is sold.
Usually, when you sell your home, you do not pay capital gains tax because there is an exemption if you’re selling what is known as your principal private residence. But this exemption is forfeited when you set up certain types of trust.
Using a trust could also mean that you lose an additional inheritance tax allowance of £175,000, called the residence nil-rate band. This allowance is normally available where you pass a family home worth under £2 million to direct descendants. But it is not available where someone has transferred their home into a trust during their lifetime.
In the case of John Hopkins, when he died, his property was worth £340,000 and his savings had risen to £81,000, taking the estate to £421,000 – above the standard inheritance tax threshold of £325,000. Had the home passed directly to his descendants, the estate should have been able to claim the residence nil-rate band and his allowance would have been £500,000, so there would have been no bill to pay. But because of the trust structure, the estate was not eligible for the additional allowance.
The estate also incurred £9,400 in solicitors’ fees because of the complexity the trust added to probate, a £2,350 bill to get the trust dissolved to enable the sale to proceed, plus insurance and council tax on the empty property while the sale was held up.
‘The people selling these trusts tap into people’s good nature and convince them that they should protect their hard-earned savings to pass on to the next generation,’ says Lucy. ‘But in reality these trusts are often worthless, unnecessary and can cause more complexity and costs for loved ones after someone dies.’
Heartbreaking delays caused by legal limbo
Mandy Kittles’ parents took out a Family Protection Trust in 2012.
Helen and John Kittles died four years ago, but Mandy and her sister Anne say they have still not received a penny from the estate because it remains trapped in legal limbo.
The law firm involved in setting up the trust has since gone out of business. As a result, the sisters endured a two-year delay before they could sell the family home in Reading, Berkshire, while they replaced the solicitors’ names with their own and applied for probate. They have still not been able to access any funds – worth £470,000 after inheritance tax – because they have struggled to find a specialist who knows how to unwind these types of trusts.
‘This has had such a traumatic effect on me and my health, mentally and physically,’ says Mandy, 57. ‘I’ve had a mental breakdown because of it because I’m on benefits and I’ve got no money. My garage roof has totally caved in and my bedroom has water coming through the roof because I’ve got no money to sort it out.’
Mandy says the trust has cost the estate around £170,000 in inheritance tax. She says this is because the solicitors signed as the trustees instead of Mandy and Anne, meaning the estate did not benefit from inheritance tax reliefs such as the nil-rate band, and the trust was also subject to periodic charges. She says that if the property had never been put into trust, there would have been no IHT to pay.
‘What makes me really angry is that I know for a fact my father would never have signed that trust if he had really understood what it meant,’ she says. ‘If he knew the stress and costs it would cause me and my sister after his passing, he’d be turning in his grave.’
Unwinding a trust can be complex and costly. Often, the organisation that set up the scheme is unregulated and uninsured and may not even exist any more, meaning it’s difficult to get a refund or to bring an action for negligence.
Jade Gani, chair of the Association of Lifetime Lawyers, says that Family Protection Trusts are not inherently inappropriate and that there are circumstances where they can play an important role in estate planning.
For example, they may be suitable where there are concerns about protecting vulnerable beneficiaries, managing assets for younger family members or addressing particular family or tax-planning considerations.
‘However, trusts are complex legal arrangements and should never be viewed as a one-size-fits-all solution,’ adds Gani. ‘Whether a trust is appropriate will depend entirely on an individual’s circumstances, objectives and wider estate-planning needs. Consumers should be cautious of any suggestion that a Family Protection Trust is suitable for everyone or that it offers a guaranteed way to avoid care fees or inheritance tax. Such claims are often misleading.’
To find a trusted solicitor, search the Solicitors Regulation Authority for one that specialises in trusts, tax and estates.
Many specialists are also full members of the Society Of Trust And Estate Practitioners, which means they have insurance and have gone through sufficient legal training.
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