A trust is a legal entity which controls assets on behalf of its beneficiaries. It is managed by trustees in terms of a trust deed which details how the assets should be distributed. It helps some but not everyone.

Here are 3 reasons why trust is not that beneficial for you:

The size of your estate
All taxpayers receive a deduction of R3 500 000 from the value of their assets in their estate before the estate duty of 20% is applied. If you leave everything to your spouse there is no estate duty payable on your death. It is paid when the surviving spouse passes on. The R3 500 000 passes onto the surviving spouse leaving up to R7 000 000 as a deduction on the value of assets before estate duty is applied. So if your estate is under R7 000 000 the benefit of a trust is limited.

Costs
The running of trust comes with administrative responsibilities. Trusts have to prepare financials and submit tax returns which incur accounting fees and costs. These costs will need to be weighed up against the benefits that the trust provides in the event of your death.

Tax
Trusts are taxed at the highest rate of 45%. If your individual tax rate is lower you should reconsider. A trust does not enjoy any exemptions on interest or capital gains either. For example, if your home is in a trust then you do not enjoy any rebate on the capital gains tax when you sell it. Whereas, if the house was registered in your name you would receive a deduction of up to R2 000 000 before capital gains is applied. Similarly, if you have taxable interest you enjoy an exemption on the first R23 800 if the investment was made in your individual capacity. In a trust, you will pay 45% on the interest without any exemption.

So a trust does not make any sense if you don’t have a sizeable estate to warrant the costs. The tax concessions are often more effective in your personal capacity compared to a trust. The costs and fees too may not be worth it.

If less than 10% of South Africans at 65 end up with sufficient capital to retire, then retirement is an illusion for the remaining most of us. So what are the options?

Depend on your family
The problem is that families are under financial pressure to make ends meet and an extra dependent will add to the pressure. This is probably the last option you will want to take as all members of the family will have to make a financial sacrifice.

Depend on the state
Not much to look forward to from a state pension. The cost of living escalates at a far greater rate than the state pension increases every year.

Carry on working as long as your health permits                                                    This is the only real solution for many people. The ideal space to be in would be a business that you create for yourself by doing something that you are passionate about that generates an income which you can live off. You then rely on your health to keep going for as long as possible. If you are driven by passion then this could be longer than you think.

Don’t give in to the paradigm of 65…                                                                             Just because your pension fund made you retire at age 65 doesn’t mean that you have to adhere. If you are prepared to think outside of conventional thinking and plan and prepare in advance your life can begin at 65. Or even before it…There are many more years ahead that you have to cater for. It’s not only about the money but also about the reason or purpose you have to get out of bed in the morning for the rest of your life.

Retirement isn’t in the frame                                                                                 Getting set in your newfound self, and taking 65 out of the picture will give you the advantage of looking past retirement and into a new chapter in your life.

If you put your mind to it there are many possibilities. It will take courage and hard work which may be a far better result than struggling on a dwindling pension throughout your retirement.

What are Unit Trusts?  

You get to invest for as little as a few hundred rands into a large investment pool which is managed by a fund manager according to a specific objective. The investment is priced in units (hence the name) based on the value of the fund. There are around 1000 to choose from locally and thousands more globally.

They are regulated

They are carefully regulated and the fund is held in a trust and is not owned by the fund manager or service provider which offers protection over your investment.
Unit Trusts are used in most investments such as pension funds, endowment policies and retirement annuities in varying combinations.

They are easily accessible
The main benefit is their liquidity. They can be cashed in at any time and the fund manager has to pay you the unit value at the closing price on the day you sell. This provides easy access to your funds when you need them.

They provide access to different asset classes
Let’s say that you want to invest in property. You can buy a building and manage the project on your own with all the challenges that come with it. Alternatively, you can invest in a unit trust which focuses on property portfolios managed by experts. You can sell this at any time and you don’t have the hassle factor whilst you are investing. Selling is easy as you get the day’s closing price of the unit, whereas, a property takes a lot longer as you wait for a willing buyer and then the long process of changing registration before getting your money.

They are cost-effective
There are no fees applied to selling units, however, you do pay a fee to buy them and while you are invested the fund manager, administrator and advisor (if you used one) will all charge you whilst they are actively involved in the investment. These fees are normally a specific percentage of the value of your fund and are collected monthly from your investment.

They provide for rand cost averaging
Unit trusts are priced per unit which moves up and down relative to the assets that they are invested in. So in a downturn, the units are cheaper and if you are buying on a monthly basis you simply get more units at a cheaper price. If and when the value increases you have more units at a higher value. The converse applies in a bull market where units are more expensive.

Unit trusts provide access to sophisticated investments with ease and protection. However, the choice of funds needs homework and often needs the help of a financial advisor. Equity unit trusts are at the aggressive (high-risk) side of the spectrum whereas bond and money market unit trusts land at the conservative (low-risk) side. Balanced unit trusts which have a combination of these funds offer a moderate-risk investment.