Trusts are a valuable estate planning tool, but it is crucial to note that they cannot act as a sword and a shield for Inheritance Tax purposes, i.e. you cannot transfer an asset into a trust and continue to benefit from it and reduce the Inheritance Tax liability of your estate.

The rule: Gift with Reservation of Benefit (GROB)

The rule, known as Gift with Reservation of Benefit (GROB), means that if you transfer an asset into a trust and continue to benefit from it, HMRC will treat you as never having transferred it, so it will remain part of your estate and be relevant for Inheritance Tax calculations. 

What counts as ‘benefit’?

• Living in a property you’ve placed in trust without paying market rent
• Receiving rental income from a rental property transferred into the trust
• Continuing to receive dividends from investments transferred into the trust

Even indirect and less obvious forms of benefit can fall within the scope of GROB Rules: 

• Naming yourself as a potential beneficiary of the trust
• Using a holiday home that’s been placed in the trust

Are there exceptions?

Yes, but they are limited and complex. Certain trust structures or arrangements may avoid a GROB, but professional advice is essential.

The bottom line

Retaining the benefit from an asset transferred into trust is not an effective way of reducing your estate’s Inheritance Tax liability. Transferring an asset into a trust will not reliably reduce your liability for care fees. In fact, it may actually backfire.

The rule: Deliberate Deprivation of Assets 

If the local authority conducting means testing for care fees believes that you have intentionally reduced your assets (which includes moving them into a trust) to avoid paying for care, the Deliberate Deprivation of Assets Rule may apply. If it does, it means:

• The local authority will treat you as still owning the asset
• The value of the asset will be included in your financial assessment
• You may be denied funding support 

No time limit

While there are a few considerations that a local authority will have when determining whether there has been a Deliberate Deprivation of Assets, such as the motive and knowledge at the time the assets were moved, it is crucial to remember that there is no fixed time limit for care fee assessments and local authorities can look back indefinitely if they suspect deprivation. 

Are there reliable ways to lessen the liability care fees?

There may be ways to reduce your potential liability care fees, but it is important to seek specialist advice. 

Bottom line

You cannot simply transfer an asset into a trust and expect care fees to be reduced. Doing so risks triggering deprivation rules and losing both the asset and access to funding.

For more information

For more information on trust structures or arrangements, please contact me.