What is a trust?
It is an entity created by someone who relinquishes ownership of assets and passes the control to elected trustees.
The main advantages are:
Asset protection
As the assets no longer belong to you and are owned by the trust they are protected against creditors and legal claims against you. If you are in business, for example, and your go insolvent, creditors cannot get to the assets which are in the trust.
Protection of minor children
A trust is useful to make provision for minor children who are under age and cannot make financial decisions for themselves. Trustees are appointed to work with a guardian to ensure that interest of a child’s financial well being are carefully catered for and protected.
Protection of long term growth assets
If you plan to keep assets for the provision of generations to come, such as a farm, or a share portfolio as a legacy, then a trust is useful as the assets are not disposed of at your death because they do nor form part of your estate. This can save huge estate duty costs and capital gains taxes.
Trusts are highly taxed
The downside of a trust is that it pays a flat rate of 45% and it does not get any rebates or exemptions on interest or capital gains tax.
The bottom line…….
We all get R3 500 000 off our estates before estate duty is applied. This can be passed onto a surviving spouse. So if you have a joint estate of under R7 000 000 you probably won’t benefit that much from a trust. If your tax rate is below 45% then apart from the reasons mentioned you won’t need a trust.