A recent issue of the internet-based International Advisor magazine ran a feature on ’10 reasons to use a trust’. Although aimed at UK readers, the points are all relevant to any businessperson or family man in South Africa. I have therefore redrafted them, keeping our unique context in mind…
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1. Estate value:
An asset of a certain value can be placed into trust and will increase in value in trust and not in the estate of the person who’s sold or donated the asset. The value in the estate of the transferor is therefore pegged. Although the use of interest-free loans in SA might give rise to tax consequences, there are ways of minimising these.
2. Asset protection:
Trusts are still the best asset protection vehicles available. The family’s most treasured items should be held in trust for protection against possible financial challenges.
3. Helping minors:
If you wish to give a gift to a minor, such a gift, if placed in trust, can be managed by a board of competent trustees, who will assist the minor and advise and school them in the proper care of the asset until they reach their majority.
4. Disability:
If held in trust, finance for people with disabilities can be looked after professionally by trustees.
5. Avoiding tax:
SA is one of the only countries in the world where there’s a tax upon inheritance, and where the assets passing to heirs are subject to capital gains tax. This iniquitous double tax is avoided if assets are in trust.
6. Life policies:
If placed in trust, life policies will be looked after professionally by trustees and will be available to the family quickly as the policies will be outside of the deceased’s estate. As a beneficiary under a policy, the surviving spouse may become a victim of unscrupulous salespeople and might be tempted to overspend the proceeds of a policy. Professional trustees, on the other hand, have a common law duty to ensure that capital growth takes place in trust, if at all possible. They will therefore ensure that the proceeds last as long as possible.
7. Good documentation:
A lesser-known advantage of a trust is that it’s more difficult to challenge in court than a will. Trusts are subject to proper administration and the consents of the donor or founder will be well-documented. The minutes of trustee meetings and resolutions provide a solid and largely ‘bulletproof’ body of evidence as to the donor’s wishes.
8. Flexibility:
Once an inheritance has been distributed through a will, the estate is wound up and there’s no going back. On the other hand, a trust is a very flexible tool, and the trustees will do whatever it takes to follow the true intentions of the founder of the trust. They are thus able to take action in the light of changed circumstances. This flexibility is a major advantage.
9. Gifts:
Gifts to charities can be managed by trustees, so that if there’s any wastage, they can take steps to rectify matters.
10. Less delay:
These days, the various master’s offices in the country aren’t known for their speed. Assets in trust aren’t subject to winding up on the death of the founder and consequently there’ll be no delay on that score.
Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at [email protected]. Please state ‘Tax’ in the subject line of your email.
