Is a trust still relevant?

27 April 2022,  Dr Candice Reynders 1301
The first question many of our clients ask when we propose the use of a trust for their estate or corporate structuring is “but is a trust still a safe option to use?”. A big reason for the question is probably some of the ‘bad’ press trusts have received over the years as well as the high taxation that SARS has imposed on trusts. And yet, always our answer is “if used correctly and for the right purpose, then ‘Yes’ a trust is still a very good option to use!”

And here is why we think so….

A trust is a unique legal entity which is created for the purpose of holding assets for the benefit of its beneficiaries. The trustees of a trust are placed in a fiduciary position to manage the affairs of the trust in favour of such beneficiaries in accordance with the trust deed. As the trust estate is a separate entity, all assets and liabilities of the trust are ring-fenced and protected from the personal estates of the beneficiaries, and their creditors, until such time that the assets and liabilities vest.

It is for this reason that trusts have been a mainstay of corporate and estate structuring since the inception of the trust and has been an important part in ring fencing, protecting and ensuring multi-generational security to individuals and their families. 

That said, the use of a trust should be done with care and within the broader framework of individual or corporate planning. It is advisable that the implications of using a trust must be well understood. The moment a trust is used, assets belong to a different entity and cannot be dealt with at the volition of the founder. Trusts are also taxed at a flat rate of 45% and this must be taken into account when considering the use of a trust. Despite this, in South Africa the conduit principle is still recognized allowing a trust to distribute income to trust beneficiaries and allowing income to be taxed at the marginal rate applicable to the beneficiaries and not the flat rate of 45%. But again, this must be understood and correctly applied as part of the overall structuring plan.

Also, the multi-generational aspect of a trust plays such an important role in wealth planning, as the trust allows assets and financial security to be provided for beyond the grave of the founder, ensuring beneficiaries are provided for or assets are safeguarded in the long-term and not subject to the normal business or personal risks of the founder. As always there are exceptions, but if planned for correctly, these risks can be addressed.

In our view therefore the trust remains an important tool to be considered in any corporate structuring or estate planning. Is it always the answer? Of course not, as this is where every client’s unique situation is considered as well as the overall objectives of any structuring or planning. But, where the trust makes sense, it can and should be considered for inclusion in the structuring plan.

If you’ve been scared of using a trust or would like to have a look at your corporate structures or even personal estate planning, let us know. We would love to help and see whether the option of a trust could work for you.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 

Related Sectors: Wealth Management

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