Trusts – do they stay or do they go

Trusts – do they stay or do they go

18 October 2017
Constant legislative changes affecting the taxation of trusts have raised questions about the future viability of the structures which are in place.

Many ask if the time has not come to rather unwind them. Trust specialists say there are very obvious reasons for registering and keeping a trust. If the main reason has been to reduce tax liabilities it may be a good time to rethink its future.

Normally the most obvious reasons for registering a trust is to protect ones assets, to limit liability from creditors and to ensure “multi-generational planning” for family owned businesses.

Another important reason is to consolidate assets within the trust. This enables trustees to have greater investment diversity, especially with share portfolio’s. Returns are paid quarterly, and the assets grow in the trust rather than having it distributed to each individual beneficiary.

Trusts are the highest taxed entities with a fixed effective capital gains tax rate of 36%. They might be costly to administer. It can cost up to R 5,000 for the initial set-up of the structure and another R 7 500 per annum for tax compliance and the preparation of financial statements. In the case of a complex trust the tax return can be more than 30 pages.

However, than being said Trusts can still be used very effectively for growing assets and if the trustees are doing their work in a proper manner as describe by various legislation, a trust can still be very useful in tax planning. Capital gains tax can be as low as nil %.

The most important matter that anyone that is a trustee of a trust or considering forming a trust is that they consult professionals that know trust law and all taxation legislation on trusts. A good tax accountant is very useful for this purpose.

Muller and Partners Accountants.


Comments are closed.