By Remay Olivier, Trust Product Manager
Trusts are often misunderstood and, sometimes, overly criticised. Focusing on a few identifying elements, simplifies trusts and sheds light on when to make use of them; eliminating common misconceptions, such as "trusts" are used mainly for the wealthy. Ultimately leading to the awareness that trusts are great tools to make use of during your wealth building phase.
The following guidelines might indicate the possible use of a trust:
The impact of high value assets in an estate
Where assets are growing rapidly, transferring assets into the trust whilst the asset is low in value, ensures that any further growth on the asset takes place in the trust. For example, property valued today at R 1 million versus a property value in 2030 at R 5 million. Transfer thereof into the trust ensures that the growth of R 4 million on the property takes place in the trust and not in your individual capacity, resulting in significantly lower estate duty or capital gains tax implications at death.
Other options include donating an amount of up to R100 000 per annum to a trust (R200 000 if your spouse also donates), which will not attract donation tax, as a means to reduce your personal estate and grow an asset base within the trust.
If you are concerned or curious about protecting your assets for the benefit of your family
If there are any concerns regarding possible financial mismanagement of wealth, whether before or after death, then the benefits of trusts should be considered.
Trusts are managed by trustees for the benefit of the beneficiaries. Appointing trustees, who are skilled and knowledgeable n trust administration, provides a level of comfort, knowing that wealth created, can be maintained for the benefit of financially illiterate or irresponsible beneficiaries - which may include a spouse or your children.
Ensuring that assets are efficiently transferred to your family
Assets which are already held in the trust the trust, will not form part of a deceased estates and avoids being part of the lengthy estate administration process and subsequent delayed transfer to the heirs. The above are some of the benefits of using a trust. Whether to proceed with creating a trust, requires a second step: being specific on the purpose of the trust balanced against the benefits that trusts offer. Ask questions such as:
What is the goal of the trust?
Scrutiny surrounding trusts usually points towards the notion that founders (or creators of the trust) either forgot the purpose of their trust or the intended a goal is contrary to the true intention of the trust. Creating a trust for the purposes of avoiding tax, hiding assets or mismanaging assets, are some of the reasons for enhanced scrutiny from SARS, the Master and other regulatory bodies. If a trust was created for any of the aforementioned purposes, then a trust might not be the correct structure and should be closed. However, if the trust is still aligned to the initial goal (for example: the protection of assets for your children's benefit), any scrutiny experienced towards trusts, is ultimately irrelevant.
Have you considered the costs associated with the administration of the trust?
Although trusts are seen as a costly vehicle, the cost element should not be a deterrent to the use thereof. A trust has various administrative actions that need to be adhered to, which warrants the costs associated with their use. This includes a high compliance element relating to the registration of the trust for tax, submission of annual tax returns, complying with know your-client responsibilities in terms of the FIC Act, recordkeeping of documents, attending to meetings, distributions, payment of expenses, etc.
Key take-away
Ultimately, if one of the above elements has been identified, get in touch with an advisor and engage in an estate planning exercise to confirm the following determining factors:
1. consider the cost and tax implications of transferring assets into the trust,
2. balance any tax and cost implications towards the goal of the trust.
Always keep the goal of the trust top of mind and ensure that a team of skilled trust administrators is appointed to provide the necessary guidance towards the maintenance thereof.
FNB Fiduciary (Pty) Limited Registration Number 1986/003488/07- A subsidiary within the FirstRand Group of Companies. An Authorised Financial Services Provider.
