Have you created a trust fund to protect your assets?
Posted by: teamGreen In: Asset Protection|Trust Administration|Trusts
The use of trust funds began in the Middle Ages. As knights went off to battle, they wanted to preserve their wealth and provide for their dependants should they not make it back.
Today, trusts are frequently recommended for a variety of good reasons – including protecting assets against creditors, minimizing taxes, and providing for the future of family members. Trusts must be correctly established and carefully managed, however. Here are some basic guidelines to follow when establishing a trust fund.
- A trust fund is simply an arrangement that allows for asset transfers to take place between parties. Your fund’s beneficiaries can be your children, a charity or non-profit organization.
- A trust fund can set it up to produce cash flow. You can structure it to generate money so that the fund pays out dividends to its recipients, leaving the principal untouched. (For this reason, most trust funds have a manager who is paid an annual fee or a percentage of the yearly profits.)
- A trust fund is governed by rules and limitations to the fund. It’s important to note that a trust fund normally follows rules and limitations. For example, recipients may have to reach a certain age before collecting benefits or pay out a set amount as living expenses to the recipients.
- A trust fund is not only for the rich. A trust fund can be established by anybody with the discipline to save.
To avoid some of the more common pitfalls relating to trust funds, make sure your trustees follow some basic rules.
- Trustees must understand the duties of trustees arising from both the Common Law and Trust Property Control Act.
- Trustees must carefully read and understand the provisions of the trust deed of any trust of which he/she is a trustee.
- Trustees must comply with all the administrative requirements of the trust deed. Of special importance are those rules regulating what the trustees are empowered to do and how decisions are to be made.
- Trustees must ensure that a qualified and independent trustee (such as a lawyer, accountant or a trust company) is appointed to the trust and that the independent trustee is party to all trust decisions.
- Trustees must record all the decisions of the trustees and books that account all the trust’s financial dealings.
- Trustees must ensure that letters of authority exist for each of the trustees, and that at all times there are as many trustees appointed as required by the trust deed.
Remember the fundamental purpose of a trust is the separation of ownership. Once you have transferred assets to a trust fund, you have placed the control of those assets in the hand of the trustees. You no longer own those assets, the trust does.
