WEIGHING UP WHETHER A TRUST SHOULD BE FORMED TO PROTECT ASSETS, OR NOT?
Category Advice
Families often wonder whether their assets should be protected by forming a family trust, and whether they are worth the work or costs involved in doing so. To decide, one has to look at the overall family wealth plan and property usually forms part of the biggest assets, and whether it’s viable to put everything into a family trust to protect it for children and future heirs, says Michael Bauer, managing director of estate agency SAProperty.com.
There are advantages and disadvantages, and the most important aspects can be compared below.
Clear advantages are that:
• Any growth that takes place with regards to assets is settled in the Trust and not one’s personal estate.
• In selling assets to the Trust, the amount owed by the Trust to the person selling the asset will remain outstanding on the loan account and is regarded as an asset to the estate of the person selling the asset.
• The Trust offers protection against problems which may occur if any mental incompetence arises (because the trustees will act on that person’s behalf).
• The Trust remains confidential whereas documents such as wills or records of deceased estates are public documents and are open for inspection.
• A Trust can offer financial protection to disabled dependents, children or beneficiaries with special needs.
• A Trust evades the administrative costs of having personal estates. When it is formed, there will be consecutive beneficiaries listed from the outset.
• The emotional stress on the family is alleviated, as the Trust will continue without any of the formalities required from a natural person’s deceased estate.
• If trustees are chosen carefully, the management and investments within the Trust is taken care of in a business-like manner with more control over the assets even if there is a death of the head of the family.
• There is no loss of income for the remaining family members, as the Trust will continue to provide a source of income for any dependents.
• Income levels can be varied, according to needs of the beneficiaries, at the trustees’ discretion.
• Because the assets become the Trust’s property, individuals save on estate duty, as the assets or properties will no longer be included in any personal estate. For the same reason, assets can be protected from creditors.
The disadvantages are fewer but need to be properly understood beforehand, which makes a clear case of why a Trust should be considered seriously if there are minor children, a dependent spouse or family members in care that might need looking after in the case of the death of the main breadwinner, said Bauer.
The main disadvantage is that there is a lack of control of the assets, as the Trust is controlled by all the trustees’ equal say in any matter and if the wrong trustees are chosen there might be problems if they are competing heirs. To avoid complications such as these, there needs to be at least one impartial trustee, who will give unbiased advice and help to ease tension if there is any, said Bauer.
“As with anything that involves a complicated process or a sizeable amount of money – as in property investments or ownership of assets – professionals should be consulted first before deciding what to do. Seek the advice of a lawyer or financial investment advisor as well as tax advisor, who will be able guide you with regards to the proper way forward with your family’s financial wellbeing should you die.”
Author: SAPROPERTY
