Family trusts, once hailed as a clever way to sidestep inheritance tax and protect assets from care home fees, have turned into a nightmare for many.
The collapse of McClure Solicitors, a firm (established in 1853) that set up thousands of these trusts, has left families grappling with hefty legal fees and unexpected tax bills, some struggling to sell family properties.
Annette Riding’s story is a prime example. Estate planners convinced her parents, Michael, and Carole Nixon to put their Newcastle home into a trust managed by McClure. They believed they were safeguarding their estate. Instead, the trust prevented Annette from selling or renting out the property after her parents passed away. Over two years, she spent £10,000 on maintenance and £3,700 on solicitors’ fees to undo the damage. Annette’s experience is not unique. Thousands of families have faced similar issues, unable to sell their homes and burdened with legal costs.
John Hopkins’ family should never have had to pay inheritance tax. His estate was worth £420,000, below the threshold for inheritance tax when considering the residence nil-rate band. However, because his property was held in a trust, his family was hit with a £35,000 tax bill. They also had to pay thousands in legal fees to remove McClure’s solicitors from the title deeds. John had set up the trust to make the end-of-life process easier for his family, but it ended up causing more trouble than it was worth.
The sale of these trusts was often incentivised.
Employees at building societies and charities were given bonuses for selling trusts to elderly clients. A former employee of Dunfermline Building Society revealed that staff were encouraged to target people over sixty, promising protection from care home fees and easy estate settlement. This led to widespread mis-selling and financial hardship for many families.
Paul Pygott’s parents were convinced to put their bungalow and savings into trusts by the Will Writing Company, which employed McClure’s services. Leeds City Council later refused to cover his mother’s nursing home fees, calling the trust a “sham” set up to avoid paying for care. Paul ended up paying £26,000 in care home fees and £6,000 in legal costs to sort out the estate. His parents believed they were protecting their assets, but the trust caused more problems than it solved.
The Solicitors Regulation Authority (SRA) is actively addressing the issues related to McClure Solicitors’ collapse.
McClure’s work and certain assets were transferred to Jones Whyte in 2021. Clients could choose to have Jones Whyte act for them or take their files elsewhere. The SRA is concerned about delays and poor service, and has been working with other agencies, including the Legal Ombudsman and the Law Society of Scotland, to investigate these concerns. Jones Whyte has provided a compliance plan to address client issues, including deadlines for reviewing family protection trusts and returning client money. The SRA cannot take enforcement action against former partners of McClure who are no longer on its Roll of Solicitors in England and Wales. However, it continues to monitor the situation and will act if necessary to protect consumer interests.
Police Scotland has closed its criminal investigation into McClure Solicitors, determining that no criminality was established. This closure, however, does not diminish the ongoing regulatory scrutiny and the efforts to address the fallout from McClure’s collapse. Andrew Robertson, the former director of McClure, maintains that “clients should not fear that money has been wasted.” He asserts that “the trust was and remains a good service and the fact McClure no longer exists does not affect the trust.” Robertson also emphasises that “it should not be difficult to contact the trustees; we are not in hiding.”
The scandal of these “worthless” family trusts highlights the risks of setting up trusts to avoid care fees and inheritance tax.
Local authorities often challenge these trusts as a “deprivation of assets,” leading to financial losses and legal complications. Families have had to pay thousands to other law firms to resolve issues with the trusts, and many feel abandoned by the regulators.
In conclusion, while family trusts were sold to protect assets and avoid taxes, they have caused significant financial and emotional distress for many families. The collapse of McClure Solicitors and the subsequent handling of their clients by Jones Whyte have only exacerbated the problems. Families should be cautious when considering trusts and seek thorough legal advice to avoid falling into similar traps.