Age Partnership, a retirement services adviser, has raised concern for equity release customers over the marketing of Property Protection Trusts.
Property Protection Trusts, often referred to as Asset Protection Trusts or Wealth Preservation Trusts, are commonly marketed at a cost of thousands of pounds as a way of potentially preventing a person's assets from being taken by a local authority to pay for their residential or nursing care.
Such trusts are essentially Lifetime Discretionary Trusts, whereby an individual transfers all of their assets including their home, savings and investments into the trust for the benefit of their heirs.
The idea being to reduce that person's assets held in their own name to below the Upper Capital Limit - £23,250 in England, Wales, Northern Ireland, and £24,750 in Scotland -, so the local authority is unable to charge, or charge very little, for the cost of providing care in future.
Age Partnership said it is seeing these trusts being sold with the specific aim of avoiding care home costs, a strategy it said could be "totally flawed" as local authorities have the power to challenge the legitimacy of the arrangement, if they believe that someone has deliberately deprived themselves of their property, simply to avoid paying for their own care.
Simon Chalk, technical manager for equity release at Age Partnership, said: "Not only have local authorities successfully challenged the legitimacy of many trusts, rendering them useless and a waste of money, but they get to decide how much they are prepared to contribute towards someone's care anyhow, meaning that the person could end up in a totally undesirable care home that is not of their own choosing".
Any will writer or financial adviser advising clients to set up a Property Protection Trust risks a claim for negligence if they fail to warn them about the risk that it may fail if its primary intention is to avoid care fees, and that clients will not be able release equity in future, warned Chalk.
"Where one partner dies leaving the survivor with an inadequate pension income, that person may suddenly find out that they cannot access the wealth locked up in their own home.
"That's an unacceptable situation to find yourself in, so we always encourage customers to think first of their own potential needs for money in future, by keeping ownership of their own home, before planning an inheritance for their loved ones."
Speaking at PA360 North
Speaking at PA360 North
Latest data released
Helping people set realistic savings goals