The benefits of a trust for tax & estate planning | Legal Articles


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The benefits of a trust for tax & estate planning

A trust can offer an efficient and flexible way to ensure that your assets are preserved and objectively managed and controlled by appointed trustees in the best interest of your beneficiaries.

Each person's needs are unique and so trusts are generally planned to meet the specific requirements of the individual.

What is a Trust?

Trust is a legal agreement between an owner of an asset and trustees. Based on the terms of this agreement the trustees administer the trusts assets with the necessary care to benefit the beneficiaries.

The protection of your loved ones financial interest is extremely important in the planning of your estate.

You want to be sure that your family especially minors will be looked after and that your estate and income tax obligations are kept as low as possible so that your beneficiaries can enjoy the full benefit of your estate.

You can read more here on the Types of Trusts.

Who needs a Trust?


If a minor is an heir to an estate where there is no will, or if there is a will but no trust clause, the inheritance must be paid into the Guardian’s fund of the Master of the High Court. The same happens in the event of a minor being the beneficiary to the death benefits of a policy

People who cannot take care of their own affairs

Where people are unable to take care of their own affairs owing to physical or mental conditions, their assets must be placed under the protection of a curator. The Master of the High Court will give permission for all expenses, as well as, the types of investments to be made.

Other instances where a trust can be used very effectively

  • Where there are indivisible assets
  • Certain assets owing to the natural circumstances may not be transferred to more than one person.
  • To save tax

Estate Duty

When estate duty assets are transferred to a trust. they no longer form part of your own estate. This means that all growth in the assets occur in the trust, and not in your own estate, which affect tax saving in the long term.

Capital Gains Tax (CGT)

Although capital gains tax is higher in a trust, it is an excellent estate planning instrument. There are ways of deferring the capital gains tax on a trust asset to the trust beneficiaries, so that capital gains tax is levied at an individual rate.

Income Tax

If non-allocated income is capitalised in a trust, the trust will pay income tax at the present rate of 41%. All income paid out to income beneficiaries will be taxable in their hands at their normal income tax rate.

If your assets grow faster than inflation

Certain investments such as shares unit trusts and market related policies have the potential to grow faster than inflation. If you retain these assets in your own hands they could attract estate duty. Preferably, such assets should be in a trust, effectively keeping the growth out of your own estate.

If your family composition is complex

If you're divorced or you wish to keep certain assets in your family, this could complicate inheritances and make your wall very complex to administer, resulting in unnecessary delays in settling your estate.

To protect assets

A trust can be structured in such a way that it does not vest in your hands and therefore does not form part of your estate. In the event of your insolvency, creditors cannot lay claim to these assets.

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