Is buying property in a trust the way to go?

trust

Is buying property in a trust the way to go?

The subject of trusts is bound to have come up once or on several occasions over the years. In most likely hood a relative or someone close to you established a trust for their children. Alternatively you may have heard someone speak favourably about a trust.

There are various types of trusts that can be set up and we will investigate the topic, ‘Is buying property in a trust the way to go?’ But what exactly is a trust, is it right for you, and it is always the best option to house your assets.

Defining a trust

A trust is created by a founder and can be viewed as a legal entity in which a trustee administers move able or immovable property. The trustee holds the property separately from his or her own, for the benefit of beneficiaries.

Types of trusts

There are various types of trusts in existence but we will primarily focus on three types:

Ownership trust

Under an ownership trust the founder of the trust transfers ownership of assets or property to a trustee(s).The assets are to be held for the benefit of defined beneficiaries of the trust.

Be wind Trust

In terms of be wind trusts founders make bequests to beneficiaries and vest the administration of the assets in the trustees. The beneficiaries acquire ownership of the assets, while the trustees only have the administrative control.

Curator ship trust

When it comes to curator ship trusts, the trustee(s) administer the trust assets for the benefit of a beneficiary who doesn’t have the capacity to do so.

Formation of trusts

Trusts are typically formed in two ways:

  1. Trusts can be formed while the founder is still alive, known as ‘inter-vivos’.
  2. Alternatively trusts can be set up in terms of a person’s will and comes into effect after their death. This is commonly referred to as ‘mortis causa’ or testamentary.

A further distinction can be drawn as inter-vivo trusts are ideal for keeping ‘growth’ assets, including; shares and property. On the other hand mortis causa trusts are well suited to protecting the interests of minors and other dependants who are unable to attend to their own affairs.

Advantages of trusts

There are various advantages to be derived from setting up a trust.

  • Trusts can be used to ‘lock in’ value and protect assets.
  • Protection against relationship property claims.
  • Trusts reduce and prevent claims against an estate.
  • Trusts are not publicly registered. Therefore offer a semblance of confidentiality.
  • Flexibility to deal with changes in the law.

Disadvantages of trusts

Trusts aren’t for everyone and there are issues which can manifest.

  • One of the primary drawbacks to using a trust is the cost necessary to establish and administer it.
  • Living trusts do not provide any particular tax advantages.
  • Trusts are by nature complex legal documents.
  • Loss of control of assets.

As with anything of this nature and magnitude we strongly recommend that you seek professional and expert assistance. This is the only way you can fully appreciate if buying property in a trust is the way to go for your particular circumstances.

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