Trust Funds – Securing your Assets

Trust Funds – Securing your Assets

Types | Advantages | Setting Up | Other Options

Tax law revisions have meant that trust funds are less attractive than they have been in the past. Despite this fact, they still have a place. They can protect your assets from creditors and ensure the financial security of your dependants, but they’re not suitable for everyone.

If you expect to die leaving assets of more than R3 million, it may be worth considering altering your will to include establishing a trust. It is important to structure such a vehicle to suit your particular requirements.

There two main types of trust funds:

  • Testamentary trust
    This is stipulated in a will, but is only formed when you die. The most common use for a testamentary trust is housing assets for dependants, particularly minor children. Without a trust fund, your assets are controlled by guardians or the state through the Guardian’s Fund. However, there is no estate duty saving as assets are only transferred into the trust after death.
  • Intervivos trust
    This is a trust you establish during your life to house assets, preferably as you start growing your personal balance sheet.

There are a number of ways to place assets in an intervivos (living) trust, including donating or loaning money to the trust. You can be a beneficiary of your own trust, but as you do not own the assets they cannot be accessed by creditors.

Other Vehicles for Securing Assets

There are other legal entities used in financial planning for the purpose of securing assets. These include close corporations (CCs) and companies and can limit your legal liabilities and distance personal assets from creditors, and in some cases be more tax-efficient.

CCs were particularly popular among property investors in the past, but are no longer as relevant due to an increase in transfer duties and capital gains tax associated with properties bought and sold through CCs.

Other types of companies are seldom appropriate for anyone but the wealthiest individuals. The costs of setting them up and the onerous financial reporting requirements mean these are seldom worth the trouble.

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