A Twin trust structure (TTS) involves a set-up of a minimum of two (or more trusts) to help structure your investments and asset management. This usually involves Trusts that have been formed for various functions such as Family Trust, Property Investment Trust, Share Trust, Business Trust etc.
In most circumstances, the basic structure involves the Family Trust and Property Investment Trust. The need for other Trusts is based on your personal needs and consultation with a qualified Trust and Legal Consultant is important to understand your current situation.
A double Trust structure has numerous advantages for both the protection and maintenance of your wealth. It is also tax efficient and movement of funds between the Trusts incurs less tax when handled properly.
In addition to the key advantages that a Trust Offers in Asset Protection and in Property Ownership, a Twin Trust Structure has been hailed in many circumstances as one of the best ways of protecting your assets, while leveraging on credit exposure.
In this scenario, the basics involves setting up a Family Trust. This Trust will hold all the paid up assets and has very little risk attached to it. It therefore acts as a fail safe mechanism if structured correctly to ensure that the assets registered in this Trust are beyond the reach of creditors. Mumbi Financial Services (MFS) will advice you on the key loop-hole that most Creditor use within a Family Trust which revolves around your loan account to the Trust. Should you have a loan account and you are declared insolvent, there is a potential that the Creditors may reach out to the Trust… and should the Trust be unable to repay this loan, then sequestration is still a possibility. The other major concern is the structure of your Life Insurance. It is advisable to ensure that your Life Insurance is owned by your Family Trust, while life insured is that of the Trustee. Mumbi Portfolio Managers (MPM) is geared to assist you in this process and ensure you have the right set-up for your TTS.
The second most common Trust in the Twin Trust structure is your Property Investment Trust (PIT). This is the Trust that borrows and uses leverage to purchase investment properties. The primary risk here is the bonds that this Trust carries and thus exposure to creditors. However, it is important to take note of this risk and how it could impact your assets in case of insolvency or sequestration. In most cases, the banks will require that a Surety (Guarantee) to be signed by the Trustees (with the exception of your Independent Trustee). Note that should the Trust fail to pay for the bonds, the Trust can be sued by the creditors and ultimately the Trustees who hold the contractual agreement (Trust) and Surety. This is where the need for your paid up assets to be in Family Trust becomes mandatory. To avoid sequestration, your primary bond-free assets need to be in a different Trust (in this case your Family Trust) and nothing under your personal name.
One of the beneficiaries listed in the Property Investment Trust is your Family Trust. This is the crucial and all important relationship. By identifying your Family Trust as a Beneficiary within your PIT, or any other Trust for that matter, you create a ‘conduit’ for enabling the fiscal & tax benefits of your property investment Trust to be shared by the Family Trust.
In addition, you separate the Assets that have claim to creditors (in PIT – where you have bonds) and those that have no claim and are debt free (in Family Trust). The PIT can therefore borrow more to purchase more properties with both:
- Confidence that the Family Trust assets are secure from any Creditors
- Tax efficiency from the refinance and further bonds – which create a high interest expense and therefore little or no profits to declare.
You now realize that this can only be tailored to you as an individual or family. The technicalities of each situation are best discussed with a qualified individual who can offer the right advice for your situation. Contact us for more information and to schedule a consultation with one of our Client Portfolio Managers.