The Utilisation of a Trust in Estate Planning

A trust is an effective and efficient vehicle to use in one’s estate planning and planning for a family’s (financial) future. National Treasury, in association with the South African Revenue Service (“SARS”), have in recent history and are in the present day scrutinising the use of trusts by individuals to house assets and create wealth for future generations whilst leaving SARS (somewhat) empty-handed.

Treasury’s point of view focuses mostly on the tax benefits associated with accumulating assets in a trust, which is often excluded from the estate of an individual, for example: Mr C loans R1 million to his trust and purchases assets that appreciate in value over his lifetime, upon his passing Mr C has an asset, being the R1 million loaned to the trust, however, the trust’s initial R1 million has increased to R5 million. Since the trust is the owner of the assets, the R5 million will not form part of Mr C’s estate and will not attract estate duty.

Given various amendments to legislation Treasury have developed new channels in the form of other taxes to line the pockets of SARS and therefore taxing to a certain extent the assets, or at least the origin of the assets in the trust. These amendments have shifted the focus of the trust from a tax tool to a more versatile vehicle catering for various aspects of estate and succession planning:

Financial security for loved ones left behind:

Upon the passing of a deceased, the deceased’s bank accounts are frozen and paid to the estate; the estate may only, after various legal requirements have been adhered to, advance money to the family, heirs and/or legatees. This timing delay may place a financial strain on the deceased’s loved ones, especially if the deceased was the sole provider in the family.

A trust with sufficient assets may provide for the financial needs of your loved ones left behind in a time where their focus should be on grieving the loss of a loved one as opposed to worrying about sufficient finances to ensure everyday survival.

Providing security for the next generation:

Assets held by a deceased on the date of their passing attract various taxes as prescribed by the Income Tax Act, Estate Duty Act, etc. These taxes effectively erode the inheritance passed onto the surviving spouse and next generation. The use of a trust to accumulate assets can, if administered correctly, create generational wealth, which may be passed on from generation to generation without creating significant tax events.

This may, in most instances, be used to reduce the creation of significant estate planning issues for those left behind, as assets inherited by heirs in their personal capacity will immediately be included in their estates.

Taking care of those who are not able to take care of themselves:

A trust offers a unique opportunity for families to take care of those who cannot take care of themselves. A trust can ensure that relatives who cannot take care of their finances are financially cared for, like a child with special needs or a parent with a debilitating disease. Financial security for those in need provides families with peace of mind and the opportunity to focus on the things that really matter.

Protecting the professionals:

Several professions have certain risks, specifically relating to personal liability, in the sense where the professional is personally liable for damages suffered by others. These professions and their inherent risks may expose the professional to legal claims resulting in their personal assets being placed at risk. This risk may adversely affect their families. The accumulation of assets in a trust mitigates the risk of these assets being exposed to various legal claims and other creditors. Protect your family by protecting yourself.

It is common knowledge that trusts and its use are a complex topic. A one-size-fits-all approach does not and should not exist.  Consult with an ASL specialist to ensure your peace of mind in this regard.