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Asset protection

4 minute read

Learn what asset protection is, why you would need it, and how it works

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Asset protection

Asset protection, family trusts and estate planning are important strategic and financial tools. They are designed to ensure your money, investments, and other material assets are secured for future generations of your family.

What is asset protection?

The aim of asset protection is to safeguard your wealth – known as your “Estate” – during your lifetime, and after death, from financial events that could have a large impact on your money, such as:

  • Inheritance tax
  • Creditor claims
  • Business bankruptcy
  • Future divorce
  • Remarrying after death
  • Care fees

Important to know: A basic will normally passes all assets to the surviving spouse first, followed by their children.

However, if the surviving spouse remarries, you risk “disinheritance”.

This means all of your assets and lifetime wealth can, instead, be passed to the surviving spouse, their new partner and their children.

Why do family assets need to be protected?

Protecting wealth

The main purpose of asset protection and estate planning is to ensure your family will receive the full benefits of your careful financial planning. And not be subject to unexpected losses caused by tax deductions, other unforeseen charges or changes in circumstances.

Solicitors usually create and develop a trust for inheritance tax reasons, estate planning, and to protect your assets.

It can also include setting out a specific savings plan and investing to support your retirement with the income you need through sound investment management.

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How does asset protection work?

Lifetime interest trust

A commonly used type of asset protection trust is the ‘lifetime’ interest trust. It’s important to note that this is different from a trust, which you should also set up in a will.

Under this arrangement, you can protect your assets by placing property, cash, investments or policies in a trust to be held for your spouse, children or grandchildren, known as the “beneficiaries.”

Other types of trust include employee trusts, charitable trusts, personal injury or disability trusts.

Estate planning

Estate planning is a type of asset protection and wealth service that’s set up to achieve a different aim.

  • Estate planning looks at how assets are treated after death.
  • Asset protection – focuses on how assets are actively safeguarded during a client’s lifetime.

Probate will not be required for assets held in a trust. This means no probate fees and a faster process.

Family investment companies (FICs)

A family investment company can be set up for placing all your money or assets.

How a FIC works

Different types of shares can be created within the company, designed to hold the capital value of your assets for passing on to your children.

You can be a named ‘director’ and ‘preferential’ shareholder. This means you have total control over all ‘voting’ rights despite no rights to the capital itself.

By maintaining no direct beneficial interest in your FIC, after a period of seven years, the value of money, property or other assets of your estate is no longer liable for inheritance tax.

An FIC offers further tax advantages, such as mortgage interest relief and a lower tax rate on your investments.

It’s also most suitable for clients intending a significant financial investment.

Asset management services and investment advice

To safeguard your business and future family interests, asset management services advise on the different ways you can protect your lifetime assets. Personalised to your circumstances, future wishes and needs.

Advice is drawn on the significant experience and expertise of specialist asset protection solicitors, often including:

  • Annual accounts and tax returns
  • Distribution of money and assets
  • Formal winding up and dissolving of an asset trust

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About the author

Emily Marsey

Emily Marsey

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FAQs

Is asset protection worth it?

Yes, asset protection is worth it. Knowing that the value of your properties, resources, and possessions will be handled and distributed in the way you want them to be will give you peace of mind and make things a lot easier for your loved ones if you were to pass away without arranging any protections.

What debts are forgiven at death?

Student loans, credit card bills and utility bills are all examples of debts that are ‘forgiven’ after someones death. These are broadly referred to as unsecured debts which just means that they are not protected by a guarantor (this is a person that agrees to pay a borrowers debts if they cannot).

Can creditors go after beneficiaries?

No, creditors cannot go after beneficiaries because debts are always paid first, before the beneficiaries. The assets/money that they will receive will only be taken from the deceased’s estate after the creditors have been paid, usually by the executor. If there isn’t enough assets to pay off all of the debts then creditors will paid in priority order until they run out. In some cases, this can mean there is nothing left to the beneficiaries because the debts had to be paid.


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