5 do's and 5 don'ts with your family trust

There are plenty more, but here are the most obvious top ten -

First, the Do's

1. Engage an independent professional (accountant or attorney) as one of the trustees.

Otherwise you risk breaking down the firewall between your creditors and the trust assets.

2. Ensure that you are one of the trustees and also one of the beneficiaries.

You must be a beneficiary as you don't know what the future holds.

3. Get the trustees to formally appoint you as the director of the company owned by the trust.

Then you can run the company and you won't have to keep getting trustees' signatures every time you want to do something.

4. Keep minutes of all decisions made by the trustees, usually in the form of a resolution.

Otherwise you risk breaking down the firewall between your creditors and the trust assets.

5. Make the trust dormant for tax.

If you don't, you'll have to submit three nil returns each year.

And now the Don'ts

1. Don't donate cash to start the trust.

because you'll have to hold it in a bank account and it won't last long! You will have to open a bank account in order to register the trust for tax, but you can immediately close it again without contravening the Trust Property Control Act

2. Don't just make just yourself, your spouse and your children the benficiaries. Always add some others.

You could all be killed in a single accident and a trust with no beneficiaries forfeits its assets to the State.

3. Don't allow yourself to be fired by a majority of the trustees.

Read this clause carefully. You must be able to reasonably control who the trustees are without putting your own appointment at risk.

4. Don't do anything that would cause the trust to have to pay tax.

The income should be earned by a company owned by the trust as the tax rates are much lower.

5. Don't forget to appoint your replacement trustee in your will and also write a letter of wishes to the trustees.

Trusts for Asset Protection

One good reason to hold your investments in a trust is to protect them from creditors in the event of bankruptcy. Oh, of course, you'll never be bankrupt will you? Let me ask you something.

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Trusts for Estate Planning

I meet so many people who have a family trust (often three depending on who they bought from) gathering dust in a file somewhere. Often the trusts were bought after attending a seminar on the subject, but because there was no follow through they never got to put the trust(s) to the use for which it was intended.

So let's explore one good reason for forming a trust during your lifetime (it's called an inter vivos trust meaning "during life").

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The other beneficiaries

Who should be the beneficiaries of your family trust?

Lot's of clients say that the trust is for their children as beneficiaries, but that is fundamentally unsound.

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Ruling from the grave

I get lot's of people (always men, oddly enough) who are very concerned about what will happen to all their hard earned wealth once they are dead and no longer able to act as trustee for their trust.

Well, the first thing to understand is that when you're dead, you're dead.

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Taxes on trusts

SARS have brought out a new tax return for trusts (the ITR12T). There's bound to be more pub talk about SARS clamping down on trusts, but the pub experts simply pass on hearsay and never actually take the trouble to find out the facts.

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