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The popularity of trusts has generally decreased in business, due to the tightening of tax provisions around trusts, reducing their effectiveness as a vehicle to legitimately reduce tax. More and more, however, our trust accounting services team is experiencing situations whereby an entrepreneur family breadwinner, owning their own business, fails to fully contemplate the continued financial wellbeing of his/her dependants in the event of death. Upon the occurrence of death, the surviving family and dependants could find themselves in devastating circumstances, which could have been avoided through planning and the use of a trust vehicle. In this article, we explain what a trust is, its value and touch on Special Trusts.

What is a Trust?

A trust is a formal arrangement, established by a Donor or Settlor whereby assets are held by a trust for the benefit of the trust beneficiaries. Trustees are appointed to oversee the management of the trust, according to the Trust Deed.

The benefits of a Trust

Because the tax benefits of trusts have eroded over time, their popularity has been in decline, but trusts serve a multitude of purposes, including:

As in the case of companies, trusts are a vehicle for protection of the assets against creditors.
Promote continuity and succession planning (particularly in the case of businesses).
Reduces Estate Duty
An effective planning mechanism for future generations, by preserving assets in the trust.
Promote the same benefits as for a usufruct (right of use).

What is a Special Trust?

Special trusts are afforded tax advantages not applicable to other trusts. These trusts are those created for special needs individuals, not able to provide financially for themselves, or are created in terms of a will (testamentary trust) as one or more beneficiaries is a minor (under 18 years of age). Special trusts are taxed at the marginal income tax rate applicable to natural persons and not at the 45% rate applicable to normal trusts.

Additional CGT benefits for trusts created for special needs cases are:

Inclusion rate of 40% compared to normal trusts’ 80%
Annual exclusion R40,000
Enjoys primary residence and personal use assets exclusions

Various factors need to be considered in the creation of a trust. We advise our clients to engage with our Trust Accounting Services team before setting up a trust, to ensure a clear understanding on the impact on the donor’s assets of creating the trust.

Our team is experienced in the functioning and income tax treatment of trusts. Should you require trust accounting services for your trust, contact our team.

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