Asset protection, risk mitigation and limiting ones tax liability are only some of the desired reasons for separating ownership of one’s assets. This is perhaps the most significant purpose nowadays for establishing a trust.
Although great care needs to be taken during the administration of trust assets, there are still some instances where this standard of care is neglected. For example, a recent judgment handed down by the Supreme Court of Appeal scrutenised the way in which Trustees exercise their decision-making powers. The case specifically revolved around when and how internal disagreements between Trustees affect their ability to make decisions externally. The court punished Trustees who fell afoul of the provisions of the Trust Property Control Act.
There are however advantages related to purchasing assets in a trust, as opposed to buying it in personal capacity, of which the following are just a few:
- A trust is a flexible vehicle, capable of catering for various changes and uncertainties occurring inone’s life over time e.g. a larger family, death, insolvency, legislative and financial changes and other circumstances.
- Since 23 February 2011 transfer duty payable when purchasing fixed assets is the same as for a natural person.
- Since the asset(s) are not registered in own name, the value of your personal estate upon death is reduced. Should the asset value increase over time, this growth will be excluded from your estate and the CGT payable is reduced accordingly.
- Provided that you do not establish your trust(s) with the intention of prejudicing creditors, purchasing or transferring assets into a trust helps to protect the specific asset from creditors.
- Trusts are excellent succession planning tools as a property bought in a trust can remain in the trust indefinitely. Consequently, there is no need to transfer the property from the deceased into the name of a heir. In turn this saves on unnecessary transfer costs and CGT duty.
Although having some pitfalls, if administered correctly, one can benefit tremendously from purchasing and holding assets of any kind by way of a trust.