Stephan Joubert Protect your wealth using a Trust The benefits and potential pitfalls 27Mrt2024

Protect your wealth using a Trust: The benefits and potential pitfalls.

Trusts have historically been a key part of effective wealth accumulation and the protection thereof. Whether you are a high net worth individual, a business owner, or a family seeking to secure your financial legacy, understanding the benefits and pitfalls of trusts is crucial. In this article, we explore the relevance of using trusts, highlighting advantages and disadvantages for your consideration.


By Stephan Joubert (CFP®)


What is a trust? A trust is a legal arrangement whereby control over property is transferred to a person or organisation (the trustee) to be managed for the benefit of someone else (the beneficiary). Trusts must be registered by the Master of the High Court and are governed by the Trust Property control Act 1988. There are two main types of trust in South Africa:

Inter Vivos Trusts:

    • Created during the founder’s lifetime. These trusts manage assets and provide for beneficiaries before and after the founder’s death.

    • Ideal for long-term wealth preservation and succession planning.

Testamentary Trusts (Mortis Causa):

    • Established through a person’s will. These trusts come into effect after the testators death.

    • Commonly used to provide for minor children or dependents (including handicapped family).

It is important to bear in mind that SARS regards a trust as a legal entity separate from its trustees and applies income taxes at a fixed rate of 45% (with special trusts taxed at marginal income tax rates).

Some of the advantages of using a Trust are:

Asset Protection:

    • One of the primary advantages of a trust is its ability to shield assets from potential creditors, lawsuits, and legal claims. By transferring assets into a trust, you create a protective barrier that safeguards your wealth. Bear in mind that this protection becomes Null and Void if the asset was transferred to the trust by means of a loan which has not been settled at the time of a claim.

    • This benefit is particularly valuable for individuals with substantial assets who want to mitigate the risk of litigation.

Estate Planning:

    • Trusts play a vital role in estate planning. They allow you to transfer assets to your heirs while avoiding the complexities and delays associated with the probate process.

    • By specifying beneficiaries and distribution rules in the trust deed, you ensure a smooth transition of wealth to future generations.

Tax Efficiency:

    • Trusts offer tax benefits. For example, inter vivos trusts (created during the founder’s lifetime) can minimize estate taxes. It is also worth considering that if the purpose of the inter vivos trust is to provide for a minor, the trust is regarded as a Special Trust until the year of assessment in which the minor turns eighteen.

    • By strategically structuring your trust, you can optimize tax planning and reduce the tax burden on your estate.

The pitfalls to consider include:

Costs and Administration:

    • Setting up and maintaining a trust involves legal fees, registration costs, and ongoing administrative tasks, e.g. Annual financial statements, annual tax returns, annual trustee meetings etc.

    • Regular reporting and compliance are necessary.

Loss of Control:

    • When assets are in a trust, control shifts from the founder to the trustees.

    • Some individuals may find this loss of direct control uncomfortable.


    • Trusts require careful planning and legal expertise.

    • Choosing the right type of trust and drafting a clear trust deed can be intricate.

Loans to trusts – section 7C:

    • As from 01 March 2017 SARS interest-free or low interest loans to a trust by a connected natural person or company connected to that person may give rise to a deemed donation. This could attract donations tax of 20% on the deemed interest if this amount is greater than the R100,000 exempt donation.

Trusts could provide significant advantages in wealth protection, estate planning, and tax efficiency. They do however also involve costs and complexities. Consider consulting legal professionals to tailor a trust structure that aligns with your specific needs and goals. With proper planning, a trust can be a powerful tool for securing your financial legacy and ensuring peace of mind for generations to come.


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