A Versatile Tool, or a Waste?
25 June 2010
Posted by: Author: Karen Coetzer
Trusts - A Versatile Tool, or a Waste?
Despite all the bad press, they still have their place
The value of trusts as a wealth management tool has been challenged by the media several times in recent years. While they may not be suitable for every situation, trusts remain highly versatile and useful tools.If you have assets valued at more than R7 million or want to provide for your children after your death, the nusing a trust may well be your best option.
In spite of the bad press, trusts retain their status as the only legal means of separating assets from an estate.This in turn cushions the tax impact and enables long-term estate planning by those with sizeable assets.Trusts also have specific advantages where the interests of minors have to be protected, and specialised trusts can provide tax benefits for an incapacitated beneficiary.Regulators and legislators do in fact accept the value that trusts have in wealth management.
So why then have they received such negative publicity? A key concern has been to close any tax loopholes which may lead to the abuse of concessions or exemptions. In line with this, trusts have come under increased scrutiny as the courts aim to ensure that there is clear separation between trust assets and personal assets.
This ensures that trusts can provide protection from attachment by creditors, and that they qualify for certain allowances and favourable tax treatment.Greater clarity of the rules governing the use of trusts does not necessarily render them ineffective.Certainly the number of prominent figures and senior officials who set up trusts as their personal assets begin to accumulate bears testimony to their continued effectiveness.
Bear in mind too that trusts are not alone in the search to close tax loopholes.Closed Corporations and Proprietary Companies have come under similar scrutiny, and can indeed be equally, or at times even more vulnerable to problems when it comes to separating individual from company assets. Who would benefit from trust formation?
All clients who engage in estate planning have a potential need for a trust.This is decided on a case by case basis.Parents wishing to provide for minors almost always rely on trusts,as do parents wishing to provide for children suffering from mental illness or grave disabilities.This ensures that trusts can provide protection from attachment by creditors, and that they qualify for certain allowances and favourable tax treatment.
Another yardstick is asset size.It costs money to set up and administer a trust. As a rule of thumb, personal assets should top R7 million for trust formation to become viable.Exchange controls and informal immigration also sometimes create a specific need for trust structures.It should be noted, however, that a South African trust makes a poor basis for international estate planning.
Source: By Karen Coetzer (Tax breaks)