The Changing Role of Trusts in Estate Planning

Trusts have conventionally been important vehicles in estate planning. However, things change and with people living longer, their children are often in their forties or fifties by the time the parents pass away. As such, they are well established in their careers or business and can financially support themselves.

Trusts were superb tools to protect assets and make provision for children in the past when the average household had one breadwinner with a shorter life expectancy. In those days, trusts were not as heavily taxed as today. Only where the person’s income is considerable, and they have numerous high-value assets is the trust still a viable option today.

It has become necessary to reconsider estate planning. True, trusts help to reduce estate duty expenses and the assets are secured. However, for the average South African family, the trust is too expensive. It is also important to consider how the law has changed over the past few decades regarding tax and estate duty. The trust is thus no longer the number one vehicle for protecting assets or to gain maximum benefits of exclusions to the estate. The cost of setting up and administering the trust, high taxes associated with trusts, and the complexity of the trust should also be considered when doing estate planning.

With people living to ripe old age today, the chances of the trust founder having to use the value attributed to the trust for retirement increase. If the person does so for a long period the trust loses its value and simply costs more than what it is worth in estate planning. One should also consider the recent tax law changes, which add more tax liability to loans, created for transferring assets from the individual’s estate to the trust. If the trust is not created solely for tax purposes it can still be a valuable tool in estate planning to protect important assets, provided it is structured correctly and the estate is considerable.

If you are considering setting up a trust or have assets in a trust, you should ask whether there is value in keeping the trust the way it is, or whether restructuring is necessary to get more benefits from it as part of estate planning. It is important to understand that if you have a large estate, the trust is still a viable option for protection of the assets and a way to reduce the effects of estate duty. However, your estate planning should also include a will, which should be updated regularly to reflect your changing wishes and financial status.

Call on our team of lawyers to assist with issues related to creation and execution of a will, estate planning, and trusts in South Africa to help you make informed decisions.


Disclaimer: This article is for information purposes only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing –  May 2018.