Trust fund

[andrecv]

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 !

[Houses4Rent]

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.

[sterne.law@gmail.com]

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?

[AmithS]

"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!

[Houses4Rent]

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.

[reuphk]

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.

[Houses4Rent]

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.

[Basment Dweller]

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.

[Houses4Rent]

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.

[Justloadit]

That is my understanding too.
The independent trustee brings in credibility to the Trust.

[Basment Dweller]

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.

These trustee companies will tell you this and cite some obscure case law where some trust got pierced because there was no independent trustee. That fact is that it's 100% legal to run a trust without an independent trustee and as long as you govern the trust correctly (which you can easily do yourself), you will be fine, many many trusts operate this way.

You're not a pension fund.

[CLIVE-TRIANGLE]

The Act has not yet been amended to make this a requirement, but the Master is highly unlikely to register a trust without one.

The Master devised this requirement in response to the findings of the SCA in what is known as the Parker case. The case is was pretty much a landmark judgement.

The judgement included this bit "the Master should in carrying out his statutory functions ensure that an adequate separation of control from enjoyment is maintained in every trust. This can be achieved by insisting on the appointment of an independent outsider as trustee to every trust in which (a) the trustees are all beneficiaries and (b) the beneficiaries are all related to one another" and much of our law is that of precedence.

If you do attempt to register without an independent trustee and resort to the Trust Property Control Act, you will indeed find no such requirement, but the chances of a successful registration are practically non-existent, so much so that legal circles are campaigning to have the Act amended to include it as a requirement.

If you are successful, bear in mind possible negative consequences:

Acting Judge Gautschi, in the recent Morrell case, declared that the trustee was an ‘independent trustee’ in name only and that there was no real evidence of any interaction between him and the co-trustee (incidentally also the founder). The learned judge also held that given the evidence, the probable inference was that the said independent trustee allowed the founder to treat the trust assets as his personal property. Consequently the court deemed the trusts’ assets to be that of the founderfor all purposes, including for that of the redistribution order.
This is the first judgement in which the trust is regarded as the alter ego of the founder for all purposes. It effectively means that SARS may rely on this judgement to regard the trusts’ assets as the property of the founder for capital gains tax and estate duty purposes on his death, which could result in the demise of many estate plans with similar shortcomings.

[mosescapetown]

This is a interesting thread indeed.

If i may can I simplify some things i notice from the original posted by Andrecv.

the main idea behind a trust is to provide protection against creditors and To prevent difficult and expensive estate taxes.

Firstly as previously also noted the 3 siblings will have to qualify for the loan themselves even if they buy this home in the trust. The father can stand surety (not recommended) But the trust will still in no way be a safe protection for the future assets. In a Bond a home is a liability and not an asset yet. Only once the house is paid for will the trust provide any proper protection provided the trust DOES NOT stand surety for anyone or anything in future.

Definitely make sure you have an independent trustee on the trust. It might not be a pension fund but it provides pensions for many...

It was also mentioned to buy property in the company. this is not a bad option but that would mean allot of admin work for the directors.

Why not make a simple partnership for now and in the mean time repair the credit profiles of the siblings.