Category Archives: Trusts

Is it beneficial to create a trust?

A2A Trust can be described as a legal relationship which has been created by the founder, who places assets under the control of Trustees. This either happens during the founder’s lifetime (inter vivos trust) or at the death of the founder (testamentary trust). This article will focus on the advantages and disadvantages of an inter vivos trust.

The advantage of a trust is firstly, that inter vivos trusts can be used to minimise estate duty. No estate duty should be payable on assets owned by the Trust as a Trust does not terminate or come to an end, since it has perpetual succession. Estate duty is currently taxed at 20% of the gross estate value. This saving in estate duty can be substantially large, especially for high net worth individuals who are worth millions of rands. Secondly, as the Trust’s assets are not owned by the beneficiaries, the creditors of the beneficiaries do not have a claim regarding the assets of the Trust. This advantage is especially important for people who are exposed to potential liability. Companies as well as individuals are able to transfer assets to Trusts. Lastly, because Trusts have perpetual succession, beneficiaries will be able to continue enjoying the benefit of the Trust assets even if one of the Trustees were to pass away.

The disadvantages are firstly, the costs of setting up a Trust, which can be high. It may cost up to R 20 000 to set up a Trust. If immovable property is transferred to the Trust then transfer duty needs to be paid. The founders of the Trust may also be liable to pay Donations tax, which is taxable at 20% of the value of the assets transferred to the Trust. Transfer duty is taxed according to a sliding scale. Secondly, Trustees could find themselves personally liable for losses suffered by the Trust if it can be proven that they did not act with care, diligence and skill in terms of section 9 of the Trust Property Control Act. It is important to note that “skill” requires more than just acting in good faith. Trustees may be proven to be negligent not only if they invested in risky investments, but also if they invested capital too conservatively, causing the capital not to grow sufficiently. Trustees also need to be aware of the fact that they can still be held liable if only one Trustee has signing power on behalf of the Trust and he/she makes a poor decision that holds all the Trustees liable for his negligence.

The founder of the Trust needs to recognise that the assets in the Trust do not belong to him/her anymore. The assets belong to the Trust. Should this loss of control (from founder to Trust) not occur, the Trust may be seen as an alter ego of the founder, which could result in the assets being included in creditors’ claims as well as having estate duty consequences.

The earnings from the assets in the Trust are taxed at 40%, and interest exemptions do not apply to Trusts. Also, the inclusion rate for Capital Gains tax for an inter vivos trust is 66.6% whereas the inclusion rate for individuals is 33.3%. Lastly, as we can see from the above, a Trust is not for everyone.

It is important to weigh up the advantages and disadvantages before deciding whether to go ahead or not. The best decision would be to speak to a certified financial planner or attorney who can assist you in making the correct decision regarding your personal situation.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Voor- en nadele van Trusts

A2Trusts hou verskeie voordele, maar ongelukkig ook nadele in. Alhoewel hierdie waarskynlik nie ‘n samevatting van alle voordele en nadele is nie, deel ons graag ons ondervinding van die vernaamste voor- en nadele by die oorweging van ‘n Trust met u.

Voordele:

  • Groei wat in die trustbates plaasvind, vestig in die Trust en nie in u persoonlike boedel nie.
  • Deur die bates aan die Trust te verkoop, sal die bedrag wat deur die Trust aan u verskuldig is, uitstaande op die leningsrekening bly en sal dit as ‘n bate in u boedel beskou word. Hierdie bedrag kan egter vir boedelbelastingdoeleindes verminder word deur die jaarlikse skenkingsbelastingvrystelling van R100 000 te benut.
  • ‘n Trust bied beskerming teen probleme indien u verstandelik onbevoeg raak. Dit kan dit ook onnodig maak om ‘n kurator aan te stel om u finansiële sake te hanteer.
  • ‘n Trust bly vertroulik, anders as dokumente soos testamente en rekords van bestorwe boedels wat openbare dokumente is en oop is aan die publiek ter insae.
  • ‘n Trust kan finansiële beskerming aan gestremde afhanklikes, spandabelrige kinders of begunstigdes met spesiale behoeftes bied.
  • ‘n Trust kan die koste van die administrasie van opeenvolgende boedels omseil deur voorsiening vir opeenvolgende begunstigdes te maak.
  • ‘n Trust kan die emosionele stres op u gesin verminder wanneer u sterf, aangesien die Trust sal voortgaan sonder enige van die formaliteite wat by ‘n bestorwe boedel vereis word.
  • Deur u Trustees verstandig te kies, kan u professionele bate- en beleggingsbestuur verseker.
  • Die Trust sal u in staat stel om, via die Trustees, na u dood ‘n mate van beheer oor die bates in die Trust te behou.
  • Na u dood en voordat u boedel afgehandel is, kan die Trust ‘n bron van inkomste aan u afhanklike(s) voorsien.
  • U sal verhoed dat u minderjarige kind se erfenis in die Voogdyfonds geplaas word.
  • U sal die probleme vermy om bates te moet verdeel ten einde ‘n gelyke uitkering aan die erfgename te doen.
  • Trustinkomste kan na die stigter se dood onder die begunstigdes met laer belastingkategorieë verdeel word wanneer individuele vrystellings aangewend kan word, maar alle belasbare inkomste wat in die Trust behou word, sal sonder enige vrystellingsvoordele teen 40% belas word.
  • Inkomstevlakke kan na goeddunke van die Trustees saam met die veranderende behoeftes van die begunstigdes gevarieer word.
  • Omdat die bates die eiendom van die Trust bly, en nie van die begunstigdes nie, hoef hulle ook nie die bates as deel van hulle boedels in te reken wanneer hulle sterf nie, wat ‘n besparing in boedelbelasting tot gevolg het.
  • Die trustbates sal om dieselfde rede teen krediteure beskerm wees.

Nadele:

  • U het nie meer algehele beheer oor u bates nie, aangesien die ander Trustees ook ‘n sê sal hê.
  • ‘n Trust word geregistreer en die owerhede kan toegang daartoe verkry.
  • U kan moontlik die verkeerde Trustees kies. Daar kan probleme ontstaan indien hulle wedywerende erfgename is. Dit is hoekom dit so belangrik is dat u minstens een onafhanklike Trustee moet hê.

Hierdie is ‘n algemene inligtingstuk en moet gevolglik nie as regs- of ander professionele advies benut word nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of enige skade of verlies wat volg uit die gebruik van enige inligting hierin vervat nie. Kontak altyd u regsadviseur vir spesifieke en toegepaste advies. (E&OE)