The Blue Roof

Some practical tips about using trusts.

 First, never be seduced into naming your trust after yourself, something like the “John and Mary Doe Family Trust”. How long do you think it will be before creditors pick up on that and then start suing the trust for money? And always remember this: lawyers never lose financially. Whether you win or lose the case, you still pay the lawyer. That is why you can win your case and still lose a lot of money. Don’t make it easy for the other party. I am not telling you to be dishonest in any way. And while I am on this: every lawyer and accountant will have a basic knowledge of trust – it is like a general practitioner. Rather look for the specialist.

 The idea of the trust is to separate your assets from the risks. In other words, you run an honest business and the business pays you an honest salary. But we all know business is risky, that’s why you can earn a good (not excessive) salary. With this salary you build a lifestyle – just like any other person earning a salary! Why should you and your family be punished if something goes wrong with the business? And that is why you build your life in the trust. But the idea is that there should not be any debt in the trust. In other words, nobody should be able to attach any trust asset for execution.

 You achieve that by buying cars, for instance, in the name of the trust. Furniture goes into the trust. And investments, especially growth investments, are in the trust. A good trust lawyer or advisor clued up on trusts should be able to help you with this structure.

 There are even a school that says you should split your business into at least two trusts. The one trust buys the equipment and the operating trust rents the equipment from the “asset” trust. The operating trust will then sign lease agreements for offices and overdrafts, etc. If something goes wrong, the operating trust will die, but you would still have the equipment to carry on with business. It is something to consider.

 When you decide to go the trust route, it is very, very important to have very knowledgeable advisors on your side, since there are very serious tax implications involved with trusts, which can be circumvented. Also, unless you cross all your t’s and dot all the i’s, the trust will not offer any protection.

 Lastly, what I am suggesting is not so “other-worldly”. I am teaching you not to put all your eggs in one basket! That’s old hat! And to be sure that your nest eggs are in a very strong and protected basket. Ship builders do the same – each compartment of a ship can be sealed off, so that if there is a leak in one cabin, only that cabin is lost, not the ship! Big companies do the same. Each branch is in a different company. For instance: Poor Products Ltd is listed on the stock Exchange. But it holds all the shares in Poor Products Smallville (Pty) Ltd and all the other branches all over the world. Why? So that if Superman flies through the shop in Smallville and Lex Luther leaves it a shambles, it is only that shop that is affected, not the shop in Big Town.

 Think about it – since it is only one compartment that is affected, there is some place to stand when you try to fix the problem. And in terms of business, it means you have the cash flow, or the means to create a cash flow, to fix the problem!

 I like trusts.