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Trusts and Estate Planning

Some trust advisors advocate having three (and, more recently, four) trusts. Great for them, dumb for you!

They want you to buy these trusts from them (and it is amazing how many otherwise clever people fall for it) –

1) Your family trust.

This one is to hold your family goodies, like toys-for-boys, jewellery etc. to protect them from creditors and to avoid the taxes on death.

2) Your property trust.

To hold your investment properties.

3) Your share trust.

To hold the shares in your business and any listed shares.

4) Your primary residence trust.

This is their latest idea. The trust is supposed to hold your home against attack by creditors.

Why do they say this is a good idea? They claim that it is to separate different types of risk, so that if one trust loses all of its assets, those of the other trusts are not lost as well.

Now look at it through my eyes.

Trusts are taxed at 45%, so any trust that holds income earning assets must, for tax reasons, anyway hold shares in a company that holds those assets. The companies prevent cross contamination of risk because the shareholder (the trust) is not liable for the debts of the company. That takes care of 2 and 3 above. The family jewels should have no risk attached to them. If they do, then hold them in another company owned by the same trust. Likewise your family home should be owned by a company, or even in your own name if you want to take advantage of the special tax allowances on primary residences.

So I only get to sell you one trust, because that’s all you need. The odd extra company (for 1 and 4 above, if necessary) costs less than R2 000 each compared to a trust at around R6 000.

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