When you think of trusts, what comes to mind? For most people, the word ‘rich’ springs to the fore. After all, most of the world’s wealthy have trusts. But here’s the rub: they don’t have trusts because they are rich; they are rich because they have trusts. The right legal entity could see property investors saving millions down the line in tax, registration and legal costs.
So how does the structure work?
A trust is a simple legal entity, which is established by a founder for the safe keeping and management of the trust’s assets by the trustees. The Master of the High Court appoints the trustees, who will handle the trust for the benefit of the nominated beneficiaries.
As a property investor, a trust is a great tool if used correctly. Aside from extending a property portfolio, there are also massive savings on income tax.
Unlike people, a trust has no lifespan, so even after death, a trust will continue to generate an income and capital appreciation.
When it comes to managing risks, there are benefits in the trust structure for personal assets. If property owners place their property or portfolio of properties in a trust, they no longer belong to the property owner; in essence they belong to the trust. This provides property owners with protection in their personal capacity should any actions be taken against them such as insolvency, divorce, business volatility, disputes and other financial risks.
The Elements of a trust
In order to avoid a court declaring a mismanaged trust invalid, it should be set up and managed professionally. There are five essential elements to creating a trust.
- The first is a grantor or trustor; this is the individual, company or legal entity that initiates the formation of the trust. They possess ownership rights of the asset and transfer it to another person to keep in trust.
- The grantee or trustee is the legal entity that is given the mandate to manage the property by the trustor. The trustor is under agreement to administer the property as per the trustee’s wishes. If they fail to do this, it can lead to legal ramifications.
- The trust must provide a beneficiary or beneficiaries who will benefit from the trust; the beneficiary doesn’t have to have knowledge or notification of the trust for it to be vaild.
- For a trust to be vaild there must be a specified intention from the part of the grantor to form a trust and be bound to it. This must be presented on a document called a trust.
- The trust document must specify the property, in the form of an estate, cash, a business, a vehicle or even a boat, that the trustor gives to the trustee to manage for their beneficiary.
With no limit in value to the assets that can be held in trust, the trust structure is one that allows investors the maximum savings, while protecting their personal assets should anything go wrong.
For more information on buying, selling or renting please contact Nikki Strooh 072 245 6037