The Advantages and Disadvantages of having a Trust | Intro Real Estate

We often get clients asking us if they should register their property in a Trust or in their own names. The standard answer is that if you ask 10 different Attorneys, you will most likely get 10 different answers. Here are a few advantages and disadvantages in order to make an informed decision:

The Benefits of a trust:

  • The value of your estate can be pegged for estate duty purposes, by means of a trust.
  • Growth on trust assets takes place in the trust, not in your personal estate.
  • A trust can be used where an asset such as a farm, which is not divisible, needs to be held for the advantage of more than one beneficiary.
  • It can be used to preserve assets after death to pass on to next generations, for any purpose, such as education or to meet contractual arrangements.
  • Assets of beneficiaries incapable of managing their own financial affairs, being minors, inexperienced or handicapped, can be protected.
  • During a divorce, a trust can be used to provide for continued maintenance of the children.
  • If assets are already in a trust, it allows for a smooth and quick transition thereof, to next generations.
  • If in a deceased estate, it may take months to transfer or to get access to assets or funds.
  • In case of an estate, relevant documents are open to the public while in trust it is a private matter.
  • Protect surviving spouses who are not in a position to manage their own financial affairs.
  • Protect surviving spouses and/or beneficiary (ies) against bad influences/investments.
  • Can be used to benefit special interests such as charities or educational bursaries, even after death, for an indefinite amount of time.
  • A professional trustee can be expected to be impartial towards beneficiaries, especially after your death.
  • Having assets in a trust prevents possible future intestate transfer to generations, with resulting inconveniences such as forced sales of assets.
  • Cost savings on executor’s fees and transfer costs.
  • A trust might present saving in income and capital gains tax, depending on circumstances.
  • Trusts offer flexibility.
  • Some involvement might still be possible by a living donor.

Possible disadvantages to be aware off:

  • Loss of direct control of assets.
  • When a trustee dies or becomes insolvent, it can have catastrophic consequences as there is no-one to act on behalf of the trust.
  • The choice of follow-up trustees becomes very important.
  • The choice of a trust company ensures continuity.
  • Increased tax accountability through changes in tax laws or if not structured properly.
  • A trust has to be registered as an entity, which can be accessed by such relevant authorities.
  • There are administration costs involved in the form of trustee fees.
  • There might be costs involved when transferring assets into trust.

For more information, contact Intro Real Estate. It’s the right choice.

Article courtesy of Jan Jordaan Attorneys.