Where are we with trusts and taxes after the Budget Speech?

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Not that it is anything new, but ‘trust owners’ were holding their breaths yet again before this Budget Speech. It appears not to be ‘trust owners’ alone, but the wealthy in general, who are worried, as government is desperate to plug a whole in its cashflow and budget, as well as trying to create a more equal society. And it is using taxes to drive its agenda.

What are trustees’ obligations?

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Trustees of a trust are akin to the managers of a company. They are the guardians of the trust assets and have a duty to manage these assets in the best interests of the beneficiaries, as provided for in the trust deed. They also have a fiduciary duty to beneficiaries in terms of the Trust Property Control Act.

Which assets should be held in a trust?

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Historically, estate owners were advised to move all paid up personal assets into their family trusts to save on Estate Duty, often on interest-free loan account. However, if upon your death the loan has not been repaid, the outstanding loan would constitute an asset in your estate.

How to move assets into a trust

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The general perception is that trusts are just for the wealthy. Therefore people believe that they have to build up wealth before it warrants setting up a trust. It can be a costly exercise to move assets, acquired by you, into a trust at a later stage.

Does your trust even exist?

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Have you ever read your trust deed? It is astonishing how many people have placed their entire wealth into trust structures, but have never even made an effort to confirm that their contents are factually correct, expressing their wishes properly, and remaining relevant over time.

Is your trust your alter ego (an extension of yourself)?

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If so, it exists, but will be disregarded and the assets will be treated by the Court as if they belong to you! An alter ego trust occurs where the necessary requirements for a valid trust are present when the trust is established, but the trustees of the trust act as puppets, acting mainly under the instruction of the founder or another trustee.

Which type of trust to choose - A testamentary trust or a living trust?

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When people seek estate planning advise, they may be advised to consider a trust. However, people are advised to avoid the hassle of having a trust whilst they are alive (an inter vivos trust) and to rather have a trust registered upon their death (a testamentary trust).

How a trust fits into your estate plan

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If you knew you were going to die tonight, would you know what the Estate Duty implications would be in your estate? Would there be enough cash or liquidity in your estate to pay the different costs that would arise? Are your assets as a business owner protected? Have you made sufficient provision for your old age?