When setting up a trust, it is vital to select the right trust for your particular needs
Yusuf Dukander, Project Director: Financial Services at SAICA, says this is key when you wish to leave a lasting legacy for the benefit of your beneficiaries – it is an excellent wealth generational tool for finance and estate planning. A trust is, in essence, a vessel that does not form part of your estate and which should have a perpetual existence.
These are different types of trust. Broadly speaking, you can set one up during your lifetime (inter vivos trust) and have a choice in terms of how it is administered; you can select a trust that comes into effect when you die (testamentary or will trust); or you can set up a family trust (which holds inter-generational money) or a welfare trust (created with specific purpose).
A ’bewind’ trust, which will be owned by the beneficiary of the trust, usually applies more to business and forms part of your estate – a notable exception.
An inter vivos trust is usually set up by a high-net-worth individual to protect his or her wealth, and to create a legacy. You can start at R35 million but be aware that you start paying Estate duty at R7 million.
If you don’t have quite this amount of money set aside, but you have minor children, FNB Wealth’s Louis Venter suggests you create a testamentary trust. It is absolutely vital that you choose your trustee(s) wisely as they play a critical role in managing your wealth.
- A trust makes the transfer of financial momentum between generations easier. In addition, children can learn to manage assets without actually being given assets to do with as they will.
- A trust ensures that, if you die, your family will be well looked after.
- Expect to pay between R10,000 to R20,000 a year in management fees. Capital Gains Tax went up this year and 40c in every R1 is payable; but this may have a small impact, because trusts have advantages for individuals other than pure tax-driven incentives, says Venter. The tax rules still provide us with a choice with regard to where the tax burden will fall. The tax payable in a trust is offset by the saving over time in estate duty (20%) and executor’s fees (3,5%). This benefit may only accrue to the next generation – but this generation is top of mind when one sets up a trust, anyway.
- Transfer duty rates are slightly higher for fixed property within a trust
- You do lose control over your assets – but if you are comfortable with this, you will find the pros outweigh the cons