Much has been written and said about the advantages and disadvantages of having a Trust as a special vehicle through which to invest and grow assets. Opinions vary and at times the debate can get heated.
I am, however, of the opinion that no debate about the advantages or disadvantages of an asset building trust is necessary. The only question should be whether or not in your specific circumstances you need a Trust.
Once you have answered that question in the affirmative, then it stands to reason that you should get a well-constructed Trust. Such a Trust should be specifically designed for the purposes taking into consideration the reasons why you need the Trust in the first place. That will ensure that your Trust would be user-friendly. With such a Trust the few “disadvantages" that may remain, will be far outweighed by the advantages and positives resulting from such a Trust.
How will you know if you need a Trust?
Generally speaking, if you are living in South Africa and:
1. Currently have assets exceeding the value of R3.5 million;
2. Have a spouse that currently has assets exceeding the value of R3.5 million; and
3. Have a steady income that regularly exceeds your average monthly expenditure;
Then the chances are very good that you absolutely need a Trust.
The main three reasons why you will then need a Trust are as follows:
If you fall foul of one or more of life's nasty surprises, the assets that you have placed in your Trust and which are now held by your Trust, will be safe from creditors. Such creditors include normal personal creditors, personal suretyship creditors, as well as creditors that could unexpectedly arise as a result of any of a multitude of possible accidents and/or misfortunes.
When you die (and this by the way is the first of the three guarantees in life) you will save a lot of money on taxes (which coincidently is the second of the only three guarantees in life!). The taxes which you will save on could include one or more of the following – death tax, Capital gains tax and transfer duty.
Seamless uninterrupted perpetuity of investments, assets and their operation. In the event of death or other incapacitating calamity, your Trust is the only investment vehicle that will under all circumstances seamlessly continue to exist, and all the assets that are held in your Trust will be unaffected and will not be considered to be part of your estate.
It is indeed true that certain corporate entities in certain circumstances also give you some limited form of seamless transition, but the transition will never be totally seamless and it will never be perpetual. Your shareholding in such corporate entity will ultimately fall in your estate, and will therefore be affected by your death and/or other incapacitating calamity.
It is, however, essential that you obtain sound professional advice when registering a Trust, but the cost of such advice will pale in comparison to the money that you could save if your circumstances are such that you indeed need a Trust.
The applicable tax laws are many and complicated, and I will not attempt to deal with it in this article. A well-constructed Trust should take cognisance of all relevant tax laws.
Compelling evidence of the strategic use of Trusts can be found the fact that most of the super-rich hold their vast fortunes through Trusts and hardly ever pay any form of death tax ; their empires not affected by their death or incapacitation.
PS: We have not yet dealt with the third absolute guarantee in life, but we reserve the right to do so at a more opportune and appropriate moment and forum!
For more info and articles, please visit the HPASA website