In spite of the ongoing uncertainty about how trusts will be taxed in South Africa in the future, trusts remain a very useful estate planning tool and are widely used for a number of purposes. However, if a trust is not formed or administered correctly, it can create a nightmare that acts against the very reason for forming it in the first place. Anyone thinking of setting up a trust needs not only to make sure that they are creating a valid legal structure, but also to understand the nature of the trust, the duties of trustees, and the rights of beneficiaries.
Some points to consider when setting up a trust:
The most important thing to consider is whether the founder/donor is willing to relinquish direct control over assets transferred to the trust. If not, the trust may be regarded as a front (sham) and the protection and planning opportunities afforded by trust ownership will be lost. Another important consideration will also be how to get any growth assets from an estate planning point of view into the trust.
Other considerations are:
- Whether the trust fits into the overall estate plan
- The trust should not primarily be used to mitigate paying taxes
- Whether the benefit of the trust justifies the costs and administration involved in keeping the trust compliant
- Whether to appoint an independent trustee to ensure the trust is properly administered
- Loans made by individuals and companies to trusts
Should you wish to set up a trust or discuss how we can assist you feel free to contact us for professional advice in this regard.