Trusts - the structures that house assets belonging to an individual or family - are a frequent topic of discussion between the wealthy and their advisers. Numerous arguments can be put forward in favour of and against having a trust. However, Bheki Khenisa, the fiduciary head at BoE Private Clients in Gauteng, argues that the benefit of having a trust still outweighs arguments to the contrary. This makes it an essential building block for financial planning for the wealthy.
He says an inter vivos trust - often called a living or family trust because it is created during a person's lifetime - forms a vital element in the financial planning of high-net-worth individuals.
WHAT IT MEANS
 No tax on donations less than R100 000
Go for a trust firm with a good record
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A trust provides an ideal, orderly, long-term structure to hand down assets. It also provides savings in estate duty, which is the tax payable on one's total assets at death.
In essence, once assets have been transferred into a trust, any further capital appreciation occurs outside the person's estate, meaning that the assets housed in the trust can grow without attracting higher estate duty.
"The asset-value threshold at which estate duty becomes payable has recently been raised to R3,5m from R2,5m last year, giving families more reason to save and pass on their wealth to the nboet generation," says Khenisa.
Meanwhile, trusts can also act as convenient recipients for donations, he says. This year, government doubled the boeemption level for donations tax to R100 000 from R50 000. As a result, individuals can now give up to R100 000 annually to anyone - or any trust - they'd like, without the donor having to pay tax.
A gift of more than R100 000 is still taxable at a rate of 20% on the amount above R100 000.
Khenisa says another significant benefit of an inter vivos trust, especially for those involved in business ventures, is that the trust would afford them protection should they be sued for whatever reason, as its assets would be boecluded.
Weighing against these positive features is the drawback of the loss of full control of one's assets.
"Once an inter vivos trust is created to hold certain assets, the original owner of the assets becomes the cotrustee of the trust that holds them. T he other trustees will also have a say in how they are used, so the owner gives up his or her previous 100% control. This is the principal argument against this type of trust."
The testamentary trust also deserves close attention by the wealthy, says Khenisa. Unlike the inter vivos trust, the testamentary trust is established in terms of a person's will, and comes into boeistence only after they die.
The primary purpose of a testamentary trust is to protect the interests of beneficiaries, he says. If it is in place, inherited assets are secure, and are managed in terms of the trust deed.
This does not result in a "ruling from the grave" situation, says Khenisa. He boeplains that the trustees of a testamentary trust have the discretion to act in the best interests of the beneficiaries.
As a trustee, Khenisa says BoE Private Clients acts in concert with additional cotrustees who are generally people closely associated with the beneficiaries.
BoE will evaluate the financial and other requests made by the core trustees against the trust's framework, and ensure that any actions are in the best interests of the beneficiaries.
Choosing the correct trust company to handle your affairs and those of your beneficiaries is important. "You must select a trust company that has a solid track record," says Khenisa.
Of importance is a trust company's ability to create a trust that is suited to an individual's needs. In the case of an inter vivos trust, issues such as capital gains tax require a high level of specialist boepertise, while in the case of a testamentary trust, there must be certainty that those handling your beneficiaries' interests will be of the highest calibre.
BoE Private Clients falls firmly into the category of proven long-term stability and boepertise, with roots in two of the world's oldest trust companies, the Board of boeecutors and Syfrets Trust, which started operating in 1838 and 1851, respectively.
