Legal Matters – A Guide To Trusts (Trust Funds)
By Jessie Taylor
Trusts are a popular way for South Africans to protect their assets for their loved ones. Many people opt for a trust as a form of estate planning to ensure their beneficiaries get the most value from their estate. A trust (sometimes referred to as a trust fund) is a formal transfer of assets via a legal document to a trustee. The trustee is instructed to hold the assets for the benefit of the beneficiaries. One or more trustees can be appointed to administer the trust. The main reason for setting up a trust is to protect your estate and assets. A trust can protect your family’s wealth and is especially beneficial in the event of liquidation, sequestration or divorce.
There Are Several Factors To Consider Before Setting Up A Trust:
- Testamentary trust: This can be established after your death and protects any interests of minors or dependents who may not be able to look after their finances.
- Inter Vivos trust: This can be created while you are alive, and you can protect your family’s wealth for generations to come.
- Settlement trust: This trust can be set up while you’re alive to accept any proceeds from life insurance payouts or divorce settlements.
Trusts can be a useful tool in estate planning, especially for those who need to make use of any estate duty or income tax benefits. The trust enables you, as the founder, to divest yourself of your assets, transferring ownership and control of the assets to the trust. A trust is not a living person and can’t have an estate, so estate duty can’t be levied on it. This means that the assets of a trust are not taxable under the Estate Duty Act.
Because a trust puts your assets under the control of a board of trustees who can act in your place, you ensure financial security for your loved ones in the event of your death. This is particularly useful if you have minor children who won’t be in a position to manage inheritances.
There Are Several Factors To Consider Before Setting Up A Trust:
- Others will control your assets, and you should carefully consider who you appoint as trustees.
- There are costs involved in establishing a trust and fees for preparing the trust’s financial statements and filing any SARS tax returns.
- Assets placed in a trust are taxable at a pre-determined rate of 40%.
- Assets placed in a trust may be eligible to pay Capital Gains Tax.
Setting Up a Trust Can Be A Complex Process, But That There Are A Number if Benefits To Including It In Your Estate Planning:
- Financial concerns will remain private: A trust’s financials remain protected from public inspection. However, by law, a deceased estate must
- Less tax: You may be able to reduce the impact of estate duties on your assets if you set up a trust, depending on the type of trust established. In certain circumstances, income from a trust can be split between beneficiaries and reduce tax liability.
- Effective estate management: Trusts are an ideal way to prevent mismanagement of inheritances as the trustees administer control over the assets and ensure the trust benefits your beneficiaries.
- Protection from creditors: Trusts are also a good way to protect property from claims by creditors, as the property does not form part of an individual’s personal estate.
Trusts also offer the benefit of continuity. When a person passes away, their estate might take months to be finalised, and beneficiaries can only access estate assets once the executor has gone through the required process and formalities. A trust, however, is a separate vehicle and will not be affected by the founder’s death.
In addition, it ensures that some assets can remain intact. Certain assets, such as farm property or certain business entities, are not always suitable for dividing among beneficiaries. A trust is ideal for taking ownership of such assets and keeping them intact.
While a trust may not be in every family’s best interest, it can provide a way to protect your assets and provide for your loved ones after your death. It also offers many benefits, including ensuring that minor benefits are provided for.
Source: Daily Maverick | Cape Town ETC | City of Cape Town | SUGi Project