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A properly structured asset protection plan allows the debtor to reveal the nature and the structure of the plan without sacrificing its efficacy.The general proposition underlying asset protection is that a creditor can reach any asset owned by a debtor, but cannot reach assets not owned by the debtor.This may result in your dependants not receiving an income until after your estate is finalised. If a beneficiary becomes insolvent, the assets in the trust continue to be protected (unlike shares in a company).Likewise, if you, as the donor, or the trustees become insolvent, the trust's assets remain protected. Income from a trust can be structured in a number of ways to provide tax efficiency.Asset protection does not deal with secrecy or hiding assets.Hiding assets is an ineffective means of shielding them from creditors because a debtor would usually have to disclose his assets in a debtor exam, under penalty of perjury.For example, R100 000 earned by a trust can be split between five beneficiaries so they earn R20 000 each.
The objective is to change the creditor's economic analysis, making the pursuit so difficult and expensive, the creditor will either give up or be willing to negotiate on terms more favourable to the debtor.Advantages of a trust There are a number of advantages to placing assets in a trust for estate planning purposes. If you have made use of a loan to the trust, the value of the assets as at the date of transfer remains an asset of your estate because of the loan account in your estate. Also, the trust does not pay CGT as long as an asset is not sold. On the other hand, assets in your estate may not be freely available to your dependants, because your estate is frozen during the winding up process. A beneficiary cannot sell a right in a trust (unlike shares in a company). The growth on assets, such as shares, transferred to a trust is not subject to estate duty, because the growth belongs to the trust. This means that a trust is not liable for estate duty, other taxes or costs, such as transfer duty, executor's fees, or conveyance fees, that would be payable in the hands of your estate or heirs. The value of any assets transferred to a trust is effectively frozen for estate duty purposes. Trusts continue to pay benefits to dependants (beneficiaries) after you die.Asset protection The term "asset protection" is commonly misunderstood.
Many believe that it refers to the techniques used to shield a debtor's assets from creditors' claims.
Consequently, the focus of all asset protection planning is to remove the debtor from legal ownership of assets, while retaining the debtor's control over and beneficial enjoyment of the assets.