Trusts are an effective way to pass property onto heirs – but beware of dishonest trustees

Due to the fact that properties passed on by benefactors to their heirs are taxed higher on capital gains if they are in trusts than they would be if they were given directly to the individuals concerned, this method of leaving property to others is not as widely used as it used to be.

However, provided great care is taken in selecting the trustees, trusts can be a good means of ensuring that the beneficiaries act responsibly with their new inheritance. This was said recently by Bill Rawson, Chairman of the Rawson Property Group.

“There will always be those heirs who are likely to misuse or even to sell a revenue-producing property if given the chance to do so. A good trustee, empowered by the benefactor to act in specific ways, will see that a property has the right tenant, is well maintained, that the rents are collected, the revenue is wisely invested and not all ‘blown’ on frivolous expenditure. Through a well-managed trust the beneficiary can be taught over a period of time to be fully responsible and to become a worthy inheritor.”

So far, so good, but, added Rawson, his long experience in the property field has shown that quite often a person whom the benefactor has found to be completely reliable and trustworthy during his lifetime becomes a different sort of personality once given control of a trust and may well use his power of attorney to ensure that he benefits from the trust far more than he should.

It is vital, therefore, said Rawson, that the benefactor be really shrewd and far-sighted in the appointment of all trustees.

“Ideally,” he said, “two or three trustees should be appointed so that they monitor and control one another and they should definitely not come from the same ‘camp’. This is, of course, sometimes not easy to achieve as trustees can get into partnerships with each other and work together for their own good. Nevertheless, trusts controlling a property can be an excellent way of seeing that an inheritance is preserved and wisely used. If, therefore, there is any question as to the maturity and responsibility of the heirs, trusts should still be considered as a means of passing on property.”