Trust me on this

Trusts are often seen as the be all and end all of estate planning. People see trusts as the silver-bullet of estate planning, but the truth is that only a handful of people will truly benefit from setting up a trust.

Having a trust just because it’s something that made financial sense in the past doesn’t mean that it’s a clever idea the future.

If used for the correct reason it can however still add a lot of value. The following are some examples:

• To protect assets in the event of insolvency. Creditors cannot claim money held in a trust. However, if you have a loan account in the trust, that loan account can be attached by creditors.
• To hold and protect assets for minors/incapacitated dependants.
• To freeze the growth in value of your personal estate, by transferring growth assets to a trust. The asset value does not grow in your hands reducing estate duty and capital gains tax at death.

It is important to also understand the disadvantages of using a trust:

• A trust is taxed significantly higher than what an individual would be taxed at.
• The loss of legal control of assets. Your assets are handed over to the trust and are managed by the trustees for the benefit of the beneficiaries. You no longer own the assets.
• The cost to setting up and continuously administering the trust, as well as a cost to transferring the assets into the trust.
• A trust can be an administrative headache and if not administrated correctly the risk exist that it can be seen as an alter ego of the Founder.

Trusts shouldn’t be used as a tax-avoidance tool. With the more recent tax law amendments and possible future changes SARS is quickly closing this gap that existed in the past.

Anyone considering setting up a trust and individuals who currently have assets in a trust should make sure they get professional advice to understand the full implications.

Heinrich Coomans | CA(SA) | CFP ® is ‘n director at Affluence Group and spesialises in Investments, Personal and Business Insurance. For any questions please contact him at heinrich@afgroup.co.za or 084 586 9509