Trust and estate planning FAQs

A Trust can help minimise estate taxes and ensure that, upon your death, your dependents and loved ones receive the maximum value from your estate’s assets. Here are some key insights as to how a Trust works.

Setting up a Trust

This guide provides an introductory overview of setting up a Trust for estate planning:

1. What role does a Trust play in estate planning?
2. Why consider setting up a Trust in your estate plan?
3. What are the advantages of creating a Trust?
4. What are the challenges associated with establishing a Trust
5. What are the different types of Trusts to consider in South Africa
6. Why should I appoint an agent to manage your Trust?

1. What role does a Trust play in estate planning?

A Trust serves a variety of purposes and can play a vital role in estate planning – particularly for people who need to make use of any estate duty or income tax benefits.

From an estate planning standpoint, a Trust can offer you the following:

• It enables you, the founder of the Trust, to divest yourself of your assets, transferring ownership and control of the assets to the Trust.
• The beneficiaries listed in your Will have a vested right to the assets, but the assets will not necessarily form part of their respective estates should they pass away in future. The beneficiary's share may be shared among the other beneficiaries that are named in the Trust, or if the deceased beneficiary has children or other heirs, the Trust document may stipulate that the deceased beneficiary's share goes to them.
• A Trust is not a living person and can’t have an estate, so estate duty can’t be levied on it. This means that the assets of a Trust are not taxable under the Estate Duty Act.

2. Why consider setting up a Trust in your estate plan?

The primary reason for setting up a Trust is to protect your estate and assets. A Trust can protect your family wealth, for example, preserving your legacy for future generations. This is especially beneficial in the event of liquidation, sequestration or divorce.

A Trust may also be set up to provide for dependents or relatives who may not be able to look after themselves or take care of their financial affairs.

A Trust puts your assets under the control of a board of trustees who can act in your place for your beneficiaries once you’ve passed away:

• This allows for financial security for your loved ones in the event of your death (or even absence or incapacity because of illness).
• Setting up a Trust is particularly important if you have minor children who won’t be in a position to manage inheritances.
• A Trust can also be created to benefit your grandchildren or great-grandchildren as its eventual beneficiaries.

3. What are the advantages of creating a Trust?

While the establishment of a Trust is an intricate process, estate planning experts say that there are several benefits of setting up a Trust as part of your estate plan.

Here are five benefits of setting up a Trust:

1. An estate’s financial concerns will remain private
   By law, the financials of a Trust remain a private concern and are protected from public inspection which is not the case when it comes to a deceased estate. Deceased estates must, by law, be advertised in the Government Gazette so that anyone who may have a claim against you can come forward and settle that claim upon your death.  
2. It may minimise estate duties
   A Trust should not be used solely for tax planning purposes, but it’s worth speaking to your financial advisor to find out whether you may be able to minimise the impact of estate duty on your assets upon your death if you decide to set up a Trust. An ‘inter vivos’ Trust, for instance, created while the individual is still alive and when assets that have the potential to increase in value are transferred to the Trust, can help ensure that minimal estate duty is payable on the assets owned by the Trust.
3. More effective distribution of your possessions
   Trusts are considered ideal vehicles to prevent mismanagement of inheritances. This can include minors or anyone who is incapacitated, or even a person suffering from a mental disorder. The appointment of the most appropriate trustees for your circumstances is of chief importance. Your trustees will administer control over the assets and protect it to ensure it benefits your beneficiaries, so you should choose carefully.
4. Enjoy enhanced protection of your assets
   Depending on the type of Trust you opt for, any assets that you place in it are not owned by you or your heirs and beneficiaries. The benefit is simple: your loved ones can enjoy the use of your assets and no creditors can claim debts against the assets you place in the Trust.
5. Secure uninterrupted succession
   It’s important to note that should one of your loved ones die, it does not impact the operation of the Trust. Your remaining loved ones will be able to continue enjoying the assets of the Trust, which won’t be the case if you bequeath assets to individuals upon your death.

4. What are the challenges associated with establishing a Trust?

Setting up a Trust to take care of your affairs after you’ve passed away can yield benefits, but there are key complications to consider when it comes to Trusts and estate planning.

1. Assets will be controlled by others
   If you place your assets in a Trust, it’s argued that there is a loss of ownership or control over these assets as trustees will now be responsible for how those assets are used or distributed.
2. Costs can escalate if you don’t set up the right Trust
   There are costs involved in establishing a Trust. You’ll need to consider the payment of any fees for preparing of the Trust’s financial statements and the filing of any SARS tax returns.
3. Your Trust is taxed at 40%
   Any assets placed in a Trust is taxable at a pre-determined rate of 40%. It’s advised to determine whether it’s better (based on your individual circumstances) to rather leave assets to individuals if they are going to pay less tax through a direct inheritance or donation – based on their personal incomes.
4. Capital Gains Tax might be payable
   Since March 2017, SARS levies Capital Gains Tax (CGT) at 36% in respect of assets placed in a Trust. Individual’s and Special Trusts’ CGT is payable at a rate of 18%. It’s advised that you discuss this with your estate planner in terms of which route could work best for you.
5. A Trust might not work in all parties’ interests
   It’s noteworthy that the establishment of a Trust isn’t in every individual’s best interest (your spouse, or children, or business partners if you’re an entrepreneur). This is why it is essential to speak to an experienced estate planner as they can help you objectively assess whose best interests matter most to you when planning your estate.

5. What are the different types of Trusts to consider in South Africa?

There are several Trust options available to South Africans who want to secure their dependents’ financial future. Depending on your wealth, your income, your assets, your marital status and much more, you will need to speak to a finance professional about what’s suited to you.

Here are three types of Trusts that you can gain access to through Standard Trust, a member of the Standard Bank Group:

1. Testamentary Trust:
   This can be established upon your death and serves to protect any interests of minors or dependents who may not be able to look after their own finances at the time of your passing away.
2. Inter Vivos Trust:
   With an Inter Vivos Trust, which can be created while you are alive, you can protect your family’s wealth over generations to come.
3. Settlement Trust:
   You can also start this type of Trust while you are alive to accept any proceeds from life insurance payouts or divorce settlements. It’s ideal for beneficiaries who are either minors or are not able to manage their financial matters at the time of your death.

6. Why should I appoint an agent to manage my Trust?

• The setting up and administering of a Trust requires intrinsic knowledge of South Africa’s tax and succession laws. By appointing an agency, like your bank, to manage your Trust you can rest assured that the right Trust is selected and drafted.