Is a trust still valid wealth preserver?
Although trusts find their origins in mediaeval times and may be perceived to be outdated, the benefits of having a trust still significantly outweigh arguments against having one, according to Niel Raubenheimer, fiduciary specialist at BoE Private Clients.
Raubenheimer says there are thousands of registered trusts and estimates that about 50% of high wealth individuals still favour this vehicle when it comes to wealth preservation.
Despite legislative changes as tax on trusts evolves, he says trusts’ ability to protect assets from creditors and predators over generations still make them an essential building block for wealth management and an important part of good financial planning.
And despite the suspicion in which trusts are sometimes viewed by treasury as a tax avoidance means, they remain a frequent topic of discussion between the wealthy and their advisors.
He says that when a trust is used properly, as a legal vehicle that houses individual or family assets, it’s important that it is created entirely suited to the particular needs of a wealthy individual. The recent changes in capital gains and dividends tax should not have a major impact on trusts’ usefulness.
“A trust provides an ideal, orderly long-term structure to hand down assets over generations whilst also providing savings in estate duty which is the tax payable on one’s total assets at death.
“In essence, once assets have been transferred into a trust, any further capital appreciation occurs outside the person’s estate, meaning the assets housed in the trust can grow indefinitely irrespective of a death.
“It is always advisable to transfer growth assets to the trust either by selling them to the trust or by means of a donation.
“The asset-value threshold at which estate duty becomes payable is R3,5m but for spouses this is aggregated to R7,0m, giving families more reason to save and pass on their wealth to the next generation.”
Meanwhile, trusts can also act as convenient recipients of donations. As a result, individuals can give up to R100 000 annually to anyone – or any trust – they’d like, without the donor having to pay tax. A gift of over R100 000 is still taxable at a rate of 20% on the amount above R100 000.
Another significant benefit of an inter vivos trust to be considered, especially by those involved in business ventures, is that the trust will afford them protection should they be sued for whatever reason, as assets of the trust would be excluded.
Weighing against these positive features of a trust is the drawback of the loss of full control of one’s assets.
“Once an inter vivos trust is created to hold certain assets and ownership of these assets has passed to the trustees, all the rights associated with ownership pass to the trustees. This is the principal argument against this type of trust.”
Raubenheimer says choosing the correct trust company to handle your and your beneficiaries’ affairs is of vital importance. “You must select a trust company that has a solid track record. BoE Private Clients has its roots in two of the world’s oldest trust companies, the Board of Executors and Syfrets Trust that opened their doors to business in 1838 and 1851, respectively.”
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