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WHAT IS SO SPECIAL ABOUT A TRUST?

Every debtor should register a Trust to protect his/her assets from creditors.  That is not the only benefit a Trust gives – it also gives continuity and can save you taxes (estate duty, capital gains tax, income tax).

Here is a short overview of why you should register a trust and how it could benefit you:

How does a Trust work? – A trust is registered at the offices of the Master of the High Court.  A Trust is created by a donor, and there are Trustees and Beneficiaries.

 Trustees and Beneficiaries – The Trustees are the persons who manage the Trust. There must be a minimum of two Trustees and if they are husband and wife there must be a third Trustee who is a professional person.  There are two types of Beneficiaries, namely Income Beneficiaries and Capital Beneficiaries.  Income Beneficiaries are the person(s) who will receive an income from the Trust (that can be you).  The Capital Beneficiaries are the person(s) who will receive all the assets of the Trust when the Trust comes to an end.

 Transfer your assets to the Trust  – once the Trust is registered, you can transfer all your assets that you do not owe any money on, to the Trust.  You can donate the assets to the Trust or you can sell it to the Trust.  You can donate R100 000 per year donations tax free to the Trust.  If the assets are worth more than R100 000, you will pay 20% donations tax on any amount over R100 000.   If you are married, you as well as your spouse can each donate R100 000 per year donations tax free.

 Assets: the property of the Trust – once the assets have been transferred to the Trust, it becomes the property of the Trust and your creditors cannot attach such assets as it does not belong to you any longer.  A trust is a separate legal entity.  This is the best reason why any debtor should register a Trust.

Trusts and debt  – any debt that you incurred in your own name, remains your debt and does not become that of the Trust, unless the Trust signs surety for your debt or takes over your debt. We strongly advise against this, as it is very important to never, ever incur debt in your Trust (unless it is a business Trust), otherwise it has the same problems as any individual person who has debt and the assets can be attached by creditors.

 Trust and Close Corporations/Companies –  Should you be the member of a Close Corporation or the director of a company, the Close Corporation will come to an end when you die.  Where a Trust is the member of the Close Corporation or you transfer shareholding of a Company to the Trust, not only will there be continuity (the business can carry on even though you have died – provided of course the business is not insolvent or another reason exists for the business to close down), but you can also save, again, on taxes.  Consult with us to explain better.

Trust and Taxes – if you manage your Trust well, you can save in taxes.  When your will is drafted, the Trust can also be used to alleviate your estate from paying estate duty and/or capital gains tax.  It is best to consult with a professional who educate you in the use of the Trust.  Too often we find persons who have registered a Trust but have never used it.

Other advantages – Each person’s life and the status of his/her assets and set-up is unique. A Trust can play a big role in one’s life and even after death.  Estate planning will involve structuring of your assets in such a manner that you and your loved ones are best protected and a Trust is an excellent vehicle that can play a big role in this.

 

This article was written by Nanika Prinsloo of Prinsloo & Associates Attorneys and Conveyancers.