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Thread: Using trusts to lower your tax and protect your assets.
What is a trust? A trust is a type of entity that can be set up in two main ways:
1) Testamentary Trust
2) Living Trust
Trustees are trusted with the assets in the trust
Lots of trust
What is a trust? A trust is a type of entity that can be set up in two main ways:
1) Testamentary Trust
2) Living Trust
Trustees are trusted with the assets in the trust
Lots of trust
1) Assets would be loaned to the trust, such as property, share portfolio's etc - and the trust would pay off this loan over time.
These assets can generate an income in the form of rental income, local/foreign dividends, local/foreign dividends and REITS.
These assets can generate an income in the form of rental income, local/foreign dividends, local/foreign dividends and REITS.
2) Instead of keeping the income in the trust and paying 45% tax on the rental income and other incomes, it can distribute the income to the beneficiaries of the trust.
This is called the conduit principle.
This is called the conduit principle.
3) So if the trust earned a rental profit of 100k, rather than paying 45k in taxes, it can distribute the 100k to 4 beneficiaries, each receiving 25k which is taxed at their own tax rates.
4) Assets within a trust can also prevent the need to pay estate duty. If your estate is valued more than 3.5million, then you may be liable for estate duty upon death.
However, with the assets in a trust, the trust doesn't pay any estate duty as it is not a "natural person".
However, with the assets in a trust, the trust doesn't pay any estate duty as it is not a "natural person".
5) When the trust sells its assets, it may be liable for high Capital Gains Taxes, but again, the conduit principle will apply if the Capital Gains are distributed to the beneficiaries.
6) Example:
Trust made a Capital Gain of 200k, if its not distributed, it will pay 72k in CGT (200 x .8 x .45 = 72)
If, however, it's distributed to 5 (individual) beneficiaries, and they haven't used their annual exclusion... there's no CGT.
Trust made a Capital Gain of 200k, if its not distributed, it will pay 72k in CGT (200 x .8 x .45 = 72)
If, however, it's distributed to 5 (individual) beneficiaries, and they haven't used their annual exclusion... there's no CGT.
7) Benefits of a trust:
It provides asset protection (protection of assets from creditors) as its a separate legal entity
It provides continuity (A trust can span multiple generations)
It has tax benefits such as the conduit principle and no estate duty
It provides asset protection (protection of assets from creditors) as its a separate legal entity
It provides continuity (A trust can span multiple generations)
It has tax benefits such as the conduit principle and no estate duty
8) Cons of a trust:
A trust can be administratively expensive as it requires:
Annual tax returns,
Bi annual prov tax returns,
Annual financial statements,
Proper recordkeeping,
Trustees that you can trust,
A good accountant/tax practitioner
A trust can be administratively expensive as it requires:
Annual tax returns,
Bi annual prov tax returns,
Annual financial statements,
Proper recordkeeping,
Trustees that you can trust,
A good accountant/tax practitioner
