Reasons to consider establishing a trust

When it comes to your family’s future financial security, it is vital to have appropriate structures in place to ensure that your wealth is not only protected, but also accumulates as profitably as possible. One of the most valuable vehicles that can be used for wealth preservation is the trust structure.

A trust is an arrangement whereby control and ownership of assets are made over or bequeathed to a trustee, for the benefit of beneficiaries, by way of a trust deed during your lifetime, or by means of your last will and testament.

When you set up a trust, you will need to nominate a trustee or trustees who will hold and manage the assets you place in the trust. The trustee ensures that your wishes are carried out with regard to your beneficiaries, who may be individuals, like children or grandchildren, or entities such as Public Benefit Organisations (PBO’s). In the deed, you define the criteria according to which the trustees must act.

Types of trusts

There are different types of trust structures that can put in place for succession planning and wealth preservation. These include:

• Testamentary trusts (on or offshore), which derive from a valid Will of the deceased. The beneficiaries of a testamentary trust will only be able to access funds when the founder dies and after the estate is wound up, which can typically be a lengthy process.
• Inter Vivos trusts (on or offshore), which is something we recommend for wealth preservation purposes, can be set up by the founder during their lifetime. Beneficiaries of an Inter Vivos trust will be able to access funds while the founder is still alive, subject to conditions stipulated in the trust deed being met.
• Public Benefit Organisation (PBO) trusts, which can be set up by a founder for philanthropic purposes. This structure can be used as a vehicle to carry out your philanthropic objectives to benefit favoured causes and drive positive outcomes for society.

Trusts and tax considerations

There are costs involved in establishing a trust, as well as tax implications that should be considered. You will also need to consider the payment of any fees for preparing the trust’s financial statements and the filing of any tax returns.

A trust should not be created with the main purpose of saving tax, as it is not a tax savings vehicle. The statutory tax rate in respect of capital gains tax is higher in a trust than for an individual and income is taxed at a flat rate of 45%. Yes, there may be estate duty savings, but a trust needs to be considered for the need it may solve for a family and not driven by an Income Tax savings purpose.

There are however, ways and means to structure your affairs appropriately, and this is where the advice and expertise of a professional becomes invaluable.

Careful planning is key

One cannot take a “ one -size” fits all approach, so having the right structure in place (subject to the requisite advice pertaining to your circumstances) will ensure that you enjoy peace of mind in terms of succession planning and family wealth preservation, while at the same time minimising expensive delays in estate administration and protecting your assets.

The establishment and administration of a trust requires an intrinsic knowledge of South African statutory and common law principles relevant to trusts. By appointing an independent professional trustee to manage your trust, you can be assured that a framework is in place to continually monitor and review your structures, so that they continue to meet your requirements.

At Wealth and Investment for example, we take the time to understand your unique circumstance and objectives so that we can tailor a trust solution that best suits your financial goals. This enables us to create a holistic legacy wealth management strategy designed to preserve and enhance your capital, in real terms.

For more information in this regard, please speak to your Relationship Manager, who will put you in touch with our fiduciary specialists.