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Thread: Trust fund

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    Full Member andrecv's Avatar
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    Trust fund

    Three siblings wants to open a trust fund in the family name in order to acquire a coastal property, however:firstly the siblings do not have good credit records, secondly the family do have a property(parents home) in the father's name that can be used as collateral and thirdly the siblings earn enough to pay the monthly installments as a group...
    Any advice/comment will be greatly appreciated.

    Thanks !

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    Gold Member Houses4Rent's Avatar
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    What is a trust fund? Did you mean creating a discretionary trust which then needs a bank account? My view is that there are many attorneys who set up a trust for you, but few have the qualifications and knowledge to do so. So ask around who other people use in your area.
    Houses4Rent
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    Platinum Member sterne.law@gmail.com's Avatar
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    If I understand the question, it is whether, given the credit records and such, establishing a trust will enable the siblings to purchase the property.
    The trust thereby providing a cloak for the credit record?
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Gold Member Singhms's Avatar
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    "the family do have a property(parents home) in the father's name that can be used as collateral"

    Bad idea, once you setup sureties and collateral very difficult to have it removed especially if the original contracts is not done properly as you will see in some other posts on this forum.

    and do you really want to risk your parents home? Bad credit ratings are already alarm bells!!!

    Just my opinion!
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    Gold Member Houses4Rent's Avatar
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    The new trust will unlikely qualify for a bond by itself as it has no income and no credit record. Hence the trustee(s) will have to sign surety which will trigger credit checks again anyway. But if all three require a fairly small amount they might qualify despite the records. Otherwise no harm to clean up the record first and then act.
    Houses4Rent
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    Interesting comments.

    On the Trust. First understand why you want a Trust and the benefits (and drawbacks) of having a trust.
    As these are siblings, we assume they would all be (1) Trustees and (2) beneficiaries.
    If you want to setup a full family Trust, place the Dad's house in the Trust (yep, transfer duties must be considered if applicable and the correct agreement that Dad has full use of the property for life etc. etc). This will bring the real benefit of having a Trust into play - reduced or no estate duty if anything happens to Dad, and all kids (as beneficiaries) get equal benefit.
    As Trustees, the bank will still look at their credit record and therefore may elect not to provide the loan (regardless of the security of the property in the trust). The question is now, does Dad have a bond on his house / have a good record and is able to pay the debt if house is bought by him.
    Consider - if Dad can buy the house (good credit record, able to make repayments), make him the Trustee, and the rest beneficiaries.
    If Dad currently has bond registered on own house, use that money to loan to the Trust, and buy the property (via the Trust structure) in cash or the like.

    Brings us to one more benefit of the Trust. It is an entity on its own. If Dad is the trustee, as he gave the surety or cash from his house, it all works well as all his kids are beneficiaries at the end. They can use the house, get payments out of the Trust etc etc.
    But dont forget - a Trust has to be administered and managed PROPERLY. Get a decent independent Trustee (Attorney / Accountant or similar)
    Later on, they can buy more property in the trust and grow it.
    Just remember - Trust taxes are high. If they ever want to sell the property, probably easier and less hassle to do it outside a Trust structure.

    Hope my opinion helps and gives you at least a few ideas, but I would advise speaking to a Trust expert.

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    Gold Member Houses4Rent's Avatar
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    Trust taxes are high, but if all profits are split up and passed to beneficiaries there is no tax at all (conduit principle).

    If a person just wants lifelong user rights also look at the usufruct/bare dominium method.


    Bottomline is get expert advice from a long standing specialised trust attorney and do not go to just any attorney who thinks s/he is a trust expert.
    Houses4Rent
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    I'd advise against signing on an independent trustee, to start. You're not a pension fund. There's a whole debate thread about this somewhere in the forum.

    Also consider transferring your properties into a PTY and make the trust hold the shares.

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    Gold Member Houses4Rent's Avatar
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    Quote Originally Posted by Basment Dweller View Post
    I'd advise against signing on an independent trustee, to start.
    If you do not have an independent Trustee SARS will most likely call your trust a sham and you will get nasty surprises in many ways. If you treat the trust assets 100% as yours you might as well not have a trust in the first place.
    Houses4Rent
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    Diamond Member Justloadit's Avatar
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    That is my understanding too.
    The independent trustee brings in credibility to the Trust.
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