|
TRICKS
& TRAPS - TRUSTS
There is a wide variety of trusts recognised
under South African Law. A distinction is drawn between
a trust created in a last will [a testamentary trust]
and one created while the planner is alive [an inter
vivos trust]. All trusts have a founder [the testator
or donor], trustees and designated beneficiaries [or
a defined class of beneficiaries].
An inter vivos trust is probably the
most useful and common vehicle in estate planning. As
an artificial entity [not a natural person] it does
not "die" and hence the assets it "owns"
are not exposed to estate duty. A trust provides succession
of benefits from one person to the next, without having
to transfer ownership of the underlying assets. After
a trust is created assets are generally transferred
to it by way of sale in exchange for a loan account
[a fixed debt due by the trust to the seller]. The value
of the seller's estate remains fixed while the assets
sold are free to grow in value without the growth attracting
the estate duty it would have in the original seller's
hands.
The advantages of trusts include: -
- structured succession planning;
- protection from personal and business creditors;
- preservation of assets against unwise utilisation
by prodigal heirs;
- a viable solution to the problem of splitting
a farm among heirs;
- pegging of personal estate values with resultant
estate duty savings;
- splitting of income tax liabilities to minimise
tax; and
- flexibility to cater for unforeseen future events.
The disadvantages of trusts include:
-
- added complexity in running your financial affairs;
- costs of formation and administration [it must
maintain proper financial records]; and
- a loss of personal control [the trustees must
manage the trust under the terms of the deed or
last will];
It is essential to do a proper cost / benefit analysis
in determining whether a trust is appropriate to you.
Care needs to be taken in deciding which assets can
conveniently be transferred to a trust and at what cost.
A properly designed trust will also cater for easy and
inexpensive termination should future legislation remove
the advantages they enjoy. |
