FinancingProperty Investment StrategyStructuring

Understanding The Purpose Of The Family Trust

understanding-family-trust

WHY THE FAMILY TRUST IS SO IMPORTANT TO YOUR STRUCTURE

In our previous article, Not Having A Trust Is The Biggest Mistake You Can Make, we discussed the different types of trusts and which structures are required in different scenarios.

In this article we specifically look at the importance of the FAMILY TRUST.

There are THREE main reasons why the FAMILY TRUST is so important.

REASON 1: ASSET PROTECTION

You want to keep all your assets that are paid off separate from your PROPERTY TRUST and YOURSELF (remember that you sign surety for your PROPERTY TRUST).

The type of assets one should keep in your FAMILY TRUST could include your primary residence, vehicles, paper assets & investments, life policies, furniture, appliances, electronic goods, art, jewellery, etc.

In order to do this, a contract of sale has to be set up to sell all your existing paid off assets to your FAMILY TRUST. A list of all your existing paid off assets with values are required to do this. A spreadsheet of an example is attached.

REASON 2: TAX BENEFITS

The second reason is the tax benefits of a FAMILY TRUST and to manage the LOAN ACCOUNTS to the PROPERTY TRUST. You and your spouse are allowed to each donate a R100,000 tax-free to your FAMILY TRUST annually.

Remember, all funds that are required in the PROPERTY TRUST should be transferred to the FAMILY TRUST and then transferred from the FAMILY TRUST to the PROPERTY TRUST. The loan accounts will thus exist between the FAMILY TRUST and the PROPERTY TRUST and not between YOURSELF and the PROPERTY TRUST.

The only time that money flows directly between you and the PROPERTY TRUST is when you pay rent to the PROPERTY TRUST for a property that you reside in that is owned by the PROPERTY TRUST.

It is also important that you FIRST finalise your annual financial statements of your trust(s) before you submit you PERSONAL TAX RETURNS.

REASON 3: ESTATE PLANNING

All assets that are in your FAMILY TRUST the day you pass away, is not subject to estate duties, executor fees or capital gains tax.

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