A trust is a legal entity which controls assets on behalf its beneficiaries. It is managed by trustees in terms of a trust deed which details how the assets should be distributed. It helps some but not everyone.
Here are 3 reasons why a trust is not that beneficial for you:
The size of your estate
All taxpayers receive a deduction of R3 500 000 from the value of their assets in their estate before estate duty of 20% is applied. If you leave everything to your spouse there is no estate duty payable on your death. It is paid when the surviving spouse passes on. The R3 500 000 passes onto the surviving spouse leaving up to R7 000 000 as a deduction on the value of assets before estate duty is applied. So if your estate is under R7 000 000 the benefit of a trust is limited.
The running of a trust comes with administrative responsibilities. Trusts have to prepare financials and submit tax returns which incur accounting fees and costs. These costs will need to be weighed up against the benefits that the trust provides in the event of your death.
Trusts are taxed at the highest rate of 41%. If your individual tax rate is lower you should reconsider. A trust does not enjoy any exemptions on interest or capital gains either. For example, if your home is in a trust then you do not enjoy any rebate on the capital gains tax when you sell it. Whereas, if the house was registered in your name you would received a R1 500 000 deduction before capital gains is applied. Similarly, if you have taxable interest you enjoy an exemption on the first R22 800 if the investment was made in your individual capacity. In a trust you will pay 41% on the interest without any exemption.
So a trust does not make any sense if you don’t have a sizeable estate to warrant the costs. The tax concessions are often more effective in your personal capacity compared to a trust. The costs and fees too may not be worth it.
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Read more from Paul Roelofse on www.investforlife.co.za