Family Trusts as Effective Asset Protection Instruments

Only once you understand the full potential of trusts do you appreciate why, despite some disadvantages, trusts make excellent estate planning and asset protection instruments. Every trust is unique, even though it falls within a specific category, and the primary function is to protect the property or assets transferred to the trust.

It can be established to protect the family’s assets or to ensure that your children will have adequate income if you are no longer around to take care of them. The trust must be set up to meet your specific requirements and this is where the expertise of trust lawyers is appreciated.

The Advantages

  • Protects assets after you have passed away.
  • Can exist for an infinite period.
  • Protects a beneficiary from their own financial behaviour such as inability to manage their money.
  • Protects transferred property from creditors.
  • No estate duty payable by the trustees and thus no winding-up fees.
  • Tax benefit since the asset’s value in the trust increases within the trust and not in a person’s estate.
  • Beneficiaries have continuity in their income or usage of an asset even if one of the beneficiaries passes away.

The Disadvantages

  • High initial setup cost.
  • Transfer duty is payable when assets are transferred to the trust.
  • Trustees can be held accountable for losses if they have not applied the necessary care in managing the assets.
  • Assets don’t belong to the trust founder, but the trust.
  • High tax rate on earnings from assets held in trust.
  • Higher capital gains tax rate for inter vivos trusts in comparison with the tax rate for individuals.

Setup and Governance

The persons that establish the trust are known as the founders. The board that manages the trust to the benefit of the beneficiaries is known as the trustees or board of trustees while the people who receive benefits from proceeds generated through the trust are the beneficiaries. It is possible to be a trustee and a beneficiary at the same time if it is a family trust.

The donor is the person that transfers assets to the trust and is normally one of the older parties.  It is important to ensure that the trust setup makes provision for continuity, such as the inclusion of a clause that makes it possible for a trustee to become the donor upon the passing away of the current donor or founder to ensure that the deed can be changed where needed.

It is furthermore important to define the beneficiaries in the broadest sense possible to ensure that grand children can receive benefit and to enable the trustees more control over who may also receive benefits.

For registration purposes at the Master of the High Court, the trust information must include the names of the parties acting as trustees and any changes to such must first be approved by the Master of the High Court. The trust must be properly managed and it is essential to clearly distinguish between the assets in the trust and personal assets. Proper governance includes once annual trustee meetings where decisions regarding the assets in the trust must be made and it is essential to maintain accurate financial record of all transactions involving the trust.

Our team of lawyers are here to assist with the setting up of trusts and amendment of trust title deeds. Make use of our expertise to avoid common pitfalls and to ensure proper estate planning.