Real Estate Investor Magazine South Africa May 2013 | Page 26

ACQUIRING

BY KOOS DU TOIT

The Truth
About Trusts

What benefits lie behind the tax?

Once investors understand
how simple and cost-effective
a trust can be, it becomes one
of the greatest tools in their
wealth creation armoury.

Why use a trust?

T

r usts a re common ly rega rded as
complex and expensive structures,
reserved for the rich and the wellconnected. This is a property investment myth
based on very little truth.
The my th that trusts are complex and
expensive is often perpetuated by financial
advisors and accounting practitioners who
simply focus on the fact that trusts are taxed
at 40%, without understanding the full tax
benefits and asset protection that trusts offer
property investors.
The truth is that, f irstly, with the right
e x per t ise, t r usts ca n be ma naged ver y
e f f ic ie nt l y a nd c o s t- e f fe c t i v e l y, w it h
exceptional tax benefits. And, secondly, the
wealthy and well-connected do not have trusts
because they are rich, they are rich because
they have trusts.

What is a trust?
A trust is a simply a legal entity, established by
a founder for the safekeeping and management
of trust assets by the trustees appointed by the
Master of the High Court for the benefit of the
nominated beneficiaries.
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May 2013 SA Real Estate Investor

Of particular importance to
property investors, a trust
is a structure through
which you can obtain
more mortgage bonds than
you would be able to in your
personal name. Trusts, as
separate legal entities, are
not subject to the provisions
of the National Credit Act.
In addition, there are
some compel ling f inancia l
benefits. If structured and managed correctly,
a trust will allow you to save significantly on
income tax. While some changes to the taxation
of trusts have been suggested, it remains to be
seen whether such changes will be effected.
Furthermore, trusts, unlike people, cannot die
and is therefore not liable for capital gains tax,
estate duty and executor’s fees when you die.
Perhaps most importantly, a trust will
ensure that your property portfolio continues
to generate an income, as well as capital
appreciation, long after your passing, creating
a legacy of wealth for future generations. No
other entity can preserve and dispense the
benefits of a legacy quite as flexibly and securely
as a trust, through which the benefits of your
life’s work can be distributed in a precisely
determinable manner.

longer belongs to you. This provides protection
against any actions that may be taken against
you in your personal capacity, for example,
insolvenc y, divorce, business volatilit y,
partnership disputes and other business and
financial risks.
Your personal assets can be safeguarded
in a trust separate from the trust in which
the buy-to-let properties are acquired. In the
unlikely event that the buy-to-let property
portfolio fails or becomes unable to pay its
debts, creditors cannot touch your personal
assets. In addition, any liability claims against
the property-holding trust will not place your
personal assets at risk, because the claim can
only be made against the property-holding trust
itself. Furthermore, should you pass away, the
property portfolio does not become part of your
deceased estate, but continues uninterrupted,
providing an ongoing passive income to the
stipulated beneficiaries.

Easy, cost-effective to manage
Just like any other legal structure or entity,
trusts can’t be set up by just anyone. Your trusts,
as the foundation of your property investment
portfolio, should be set up and managed
professionally. A number of crucial issues must
be adhered to, to avoid the possibility of a court
declaring a mismanaged trust invalid.

A trust also offers significant risk management
benef its. A property investment portfolio,
built on a foundation of the right trusts, offer
investors solid protection for their personal
assets.

Fortunately, all the tools you need are readily
available through professiona l propert y
investment organisations. For example, P3’s
experienced and specialised trust experts will
help you set up trusts tailored to your particular
needs and circumstances. In addition, P3’s
Trust Management Kit has been developed
specifically to assist members to understand the
intricacies of how a trust works and to enable
you to manage your trusts correctly, covering all
the issues you need to know to safeguard your
financial future and that of your heirs - even
beyond your lifetime.

When a trust fully owns a property, it no

P3 Investment Group

Manage risk

RESOURCES

www.reimag.co.za