How would you describe your home? Is it your castle? A nest egg? An investment or source of income? Your children’s inheritance?
Do you own more than one property? Are you considering buying a second or third property as an investment for your family? Are you set to inherit a property from relatives?
If the answer to any of the above questions is yes then you should consider putting your property into a Trust.
The biggest single asset most people own during their lifetime is their home so it should be protected at all costs.
What is a Trust?
It is a separate legal entity created when one person or persons, known as a trustee, holds legal title to assets for the benefit of another person, the beneficiary.
A Trust can own anything a person can own, so it has a great deal of flexibility, which allows it to follow you through your lifetime and the lives of your descendants.
Why is a Trust useful?
A Trust legally owns the assets held within it, so protects those assets from outside influences.
You can set up the Trust to ensure that only people related to you by blood are beneficiaries.
This way, family assets can potentially be protected from future unfortunate circumstances such as divorce or bankruptcy.
A Trust can also be used to protect the beneficiaries from themselves. One person may be a spendthrift, another easily preyed upon for their kind nature or have an addiction to drugs, gambling or alcohol.
If they were to legally own a major asset such as a property then there is a risk it would be sold and no longer be available to provide for future generations.
By putting the property in a Trust, they do not legally own the property so could not refinance or sell the property directly.
Finally, Trusts offer an excellent way of estate planning — once an asset has been transferred into a Trust it is not subject to stamp duty on death.
With the maximum current rate of stamp duty on death now 20 per cent, this could be a significant saving.
Trusts can also ensure there are no delays or hold-ups in your beneficiaries receiving their benefits after your death.
Who can benefit from a Trust?
Common situations in which a Trust may be helpful include if you are considering buying a second/third/additional property to produce additional income or to house family members.
Bermuda law states that upon death, an individual receives an exemption on their primary homestead.
This is only valid on one property or interest in a property.
If you own more than one property it will be subject to stamp duty on death, which can be as much as 20 per cent of the value.
Should your estate not have sufficient liquid assets to cover these expenses the estate would have to raise these funds, which could result in your descendents having to sell the property to settle the taxes.
A Trust may also be helpful if you co-own a property with a relative or friend. When land is held by more than one person everyone named on the title deeds would have to sign in order to transfer/sell/refinance that land.
This may not be practical if a family member has left the island, dies suddenly, leaves their share to a minor child or if they simply disagree.
When property is held in a Trust the trustee is legally responsible to sign any documentation, which can make administration considerably quicker and less problematic.
Trusts are also beneficial if you want security for your family and future generations.
By keeping a property in Trust you are not just protecting your children and grandchildren, but also your great grandchildren who you may never meet or know their personality.
Using a Trust can leave a secure legacy for many generations.
Finally, consider a Trust if you want to develop land for investment purposes, such as building condominiums or renovating existing premises for rental or sale.
A Trust is not static and can be an ideal vehicle to develop property, oversee developments and even create companies.
The Trust can be the professional link between a developer and the beneficiaries, which creates an arm’s-length transaction between the parties that otherwise could be difficult to establish.
When should a Trust be used in a property purchase?
The best time for a person to think of using a Trust is before they buy a property.
Buying a property in the name of a Trust costs the same in stamp duty and legal fees as if you were to purchase it as an individual.
In some cases, if you are to receive a property through an inheritance, you can direct that the property be vested into the Trust’s name and not your own, therefore again saving on stamp duty and legal fees.
As Trusts are independent legal entities, they can be created at any time, either specifically in order to purchase a property or in advance to hold assets and be in anticipation of a property purchase or inheritance.
Common Trust misconceptions.
People often think they need multiple Trusts for multiple properties but this is not the case — one Trust can evolve and hold as many or as little assets as necessary, be it cash, property, investments or even antiques.
It is also wrongly assumed that Trusts are complicated and no one understands them. This is not correct — banks, mortgage lenders and attorneys are used to dealing with Trusts on a day-to-day basis and will happily guide you through the process.
People often think that because they have a will they do not need a Trust but this depends on your individual circumstances.
Once an asset is put into a Trust you no longer legally own it, so since it does not form part of your estate, on death is not chargeable with stamp duty.
Your will covers what you own personally but not what has been put into a Trust.
Using a Trust and a will can be a very effective way of estate planning.
A Trust should be viewed as a professional shield against both external and internal attack.
It is designed to protect the interests of all the known beneficiaries, as well as those of future, unborn generations.
Your home is the lynchpin in your long-term financial planning and as such should be carefully protected and never squandered or dealt with carelessly.
By planning and preparing at an early stage, you can minimize the problems that many people unfortunately become faced with on a daily basis.
You have worked hard for your wealth, so take the right steps now to protect it.
http://bermudasun.bm/main.asp?SectionID=72&SubSectionID=205&ArticleID=50460