Trusts have once again come under the spotlight with the latest legislative changes and compliance requirements for trustees of SA trusts.
In light of all these requirements which may be costly and time-consuming, the question is asked whether there are advantages to keep the SA trust in place.
A discretionary trust, founded by one of the family members, can play a vital role in protecting the family legacy in line with the overall family plan and long-term objectives. The trust deed should describe these objectives as well as the role the trust will play in achieving them.
The family members can be the nominated beneficiaries, including the second and next generations. The founder can appoint trustees who know the family dynamics and the individual family members, including their preferences (and sometimes vices).
Alongside these trustees, persons can be appointed from the team of family advisers – which usually includes an accountant, family lawyer, portfolio manager, wealth manager, fiduciary specialist and tax adviser – who can ensure that the family plan is executed over generations in line with the long-term objectives of the family.
Trustees to represent the next generation, which can be one or more of the founder’s children, can be named in the will of the founder, or in the trust deed. The team of family advisers should ensure that the children receive trustee training and understand the nature and workings of a discretionary trust.
Advantages of a family trust
The advantages of establishing a discretionary trust include:
- The family wealth will be vested in the trust and will no longer belong to the founder.
- The trust assets will not form part of the founder’s estate for the purpose of estate duty, capital gains tax and executor’s fees (expert advice should be sought on the mechanics of transferring assets into a trust as well as the potential tax consequences – we can assist herewith).
- The trust assets will not be bequeathed to individual family members to do with as they wish – no single beneficiary has any right to claim a share of the family assets vesting in the trust, and can therefore not squander it.
- The Board of Trustees will be able to look after the welfare of the next generations by using trust income and capital to their benefit– including for the costs of education, travel and setting up a business.
It’s important to note that the founder of the trust can leave a letter to the trustees expressing his or her wishes in more detail regarding looking after the general welfare of the trust beneficiaries. This could include, for example, buying a small car for a trust beneficiary when he or she turns 18, providing funding for private school education, and providing for tertiary education up to a certain level.
These wishes aren’t legally binding on the trustees, but will be considered by them.
If there is already a family trust in place, the team of advisers should ascertain whether it will serve the long-term family objectives going forward and if so, whether it is being managed correctly. If needed, the team can regularise the management and administration of the trust to ensure the necessary protection of the trust assets, and that it will be compliant in terms of the latest requirements.
Educational and charitable trusts
A trust can also be set up as part of a family plan to provide exclusively for the education of next generations. Funds can be set aside in the trust for this purpose, with guidelines in the trust deed and in a letter of wishes as to how they should be applied.
If a family donates to charities on a regular basis, the establishment of a charitable trust should be considered, into which donations can be channelled from both within and outside the family. A charitable trust can obtain tax exemption if its objectives are aligned with one or more qualifying listed public benefit activities. This could mean that donations to the trust will not be subject to donations tax, and that donations could be tax deductible in the hands of the donors, subject to certain limits.
Trusts set up for any of the purposes described above should be reviewed by the team of family advisers on a regular basis to ensure that they continue to serve the long-term plan, remain up to date, and comply with changes in legislation and the regulatory environment.
If you need assistance with any of the above, including training for the next generation, contact Marteen Michau at marteen@fidelisvox.co.za.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)