We must constantly educate and re-educate ourselves to make the best of what we learn during our lifetime. Get the basics right, starting with your foundation, in this instance your trust structure, then you can comfortably build your wealth on it and grow it for generations – while benefiting from paying as little tax as possible.
Coert Coetzee registered the first “double trust” structure at the Master of the High Court in 1996, and thousands of our Wealth Masters Clients have been doing it since.
This structure consists of two layers of trusts, one for your assets (low risk) and one for the assets with liabilities (high risk), which are separated by a “firewall”. This structure enables you to split your assets from your liabilities in a legal way.
To illustrate the types of trusts that we can help you to create, we have outlined them below. The trusts from number 1 to 5 will be in your asset layer and from number 6 onward, is your liability layer.
- Family trust:
This trust is reserved for your paid-up movable assets, such as your vehicles, household content and jewelry. Do not purchase your bond free property in this trust, since you will still have creditors on the property, i.e. body corporate and the municipality. This trust should also be the owner, payer and beneficiary of the trustees’ life insurance policies. You can cede your currently life cover to the trust or apply for a new policy.
- Residence trust:
This trust is reserved for your personal residences, thus your primary residence and then if you have other homes you occupy from time to time, i.e. your holiday homes, they may also be held by this trust.
- Provider trust:
This trust holds the investment properties you want to pay off as soon as possible. You might have bonds initially, but the main aim here is to build up capital and a passive income.
- Company Asset trust:
This trust will hold business equipment, machinery and computers. The business will enter into a lease agreement with this trust to rent the equipment. The trust will generate an income and at the same time the assets are not exposed to the risk of the business.
- Share trust:
If you want to start a business or if you are already a director and shareholder of your business, this is for you. This trust will be 100% shareholder of shares in your private company. You will still act as director, but the value of the company will no longer be in your name, for risk and estate duty purposes.
I would like to illustrate the business structure explained in number 4 and 5 above and number 8 below by way of example.
Mr. A is old school, he loves the touch and smell of paper, so he starts his own commercial printing business. Since he inherited a factory from his dad, there is no need to rent a commercial property from a third party.
The right structure:
- Register a Pty Ltd for the printing business;
- Register a share trust to hold 100% shares in the Pty Ltd;
- Register a property trust to hold the factory (land and building);
- Register a company asset trust to hold the equipment.
Mr. A will be the director of the Pty Ltd and a trustee on all the trusts, along with his independent trustee. The Pty Ltd will rent the factory from the property trust and the equipment from the company asset trust.
One day Mr. A makes a huge error on a multi-million Rand printing contract, the client sues the company, but guess what, they cannot attach the equipment or the property, since the company is not the owner! This is called ring fencing!
- Cash Projects trust:
This is a high-risk trust and is reserved for your crypto positions and multi-level marketing projects. The position will still remain in your name, but the trustees will appoint you as agent to mange the position on behalf of the trust.
- Refinance trust:
This property trust is reserved for your buy-to-let (investment) properties. This is where you will make continuous use of refinancing to grow your property portfolio. As soon you a property reaches break even point, you should apply for refinance to pay a deposit on another property.
This is a high-risk trust since there will always be debt in this trust. For this reason, you don’t want to buy your primary residence in this trust. Remember we are ring fencing! You as the trustee with a financial interest will most probably have to sign surety for the properties, well at least for the first couple of properties, until there is enough security in the trust.
Speak to our property specialist, wealth master or trust advisor to ensure you are using the correct methods.
- Companies/business trusts:
This is your trading entity. Speak to your wealth master, trust advisor and accountant to ensure you choose the correct entity for your specific business.
As you can see there is a safe way to structure your assets and liabilities. Don’t feel overwhelmed with all the different types of trusts. You might only require two trusts or you can build on your double trust structure, a trust at a time.
We will be discussing the ideal trust structures for both SA and Mauritian portfolios in our webinar on the 10th March. Click on the link below to register.
SOURCE: Wealth Masters Club