May 18, 2021
7 advantages of holding assets in a trust
Trusts are a way of protecting assets
What is a trust? A trust is a legal arrangement to protect assets and ensure they are managed or distributed as the donor (the person who owns the assets) wishes. The donor gives the trustee the right to hold title to the assets for the benefit of a third party. In a trust, assets are held by the trustee/s for the beneficiary or beneficiaries, on the instructions of the owner of the assets. Why would you choose to place your assets in a trust? What are the advantages of holding assets in a trust?
Principal advantages of holding assets in a trust
Some of the tax advantages enjoyed by trusts in the past no longer apply, but it can still be beneficial to hold assets in a trust. There are seven key advantages:
- Asset protection – a trust is the only entity that benefits from total asset protection, thus ensuring it stays out of the clutches of creditors.
- Estate planning and continuity – a trust survives the life of an individual (donor/trustee/beneficiary) and can span multiple generations. Because assets in a trust no longer fall into one’s personal estate, they are not subject to estate duty.
- Saving of executor’s fees – trusts can largely save high estate executor fees (3.5% of the gross value of the estate excluding VAT plus 6% of the interest collected after the deceased’s death).
- Confidentiality – a trust deed is a confidential document, as opposed to documents like wills and records of deceased estates, which are public documents and therefore open for inspection.
- Control over assets – a donor can ensure a measure of control over their assets by appointing competent professionals (the trustees) to manage and maintain the assets in accordance with the donor’s directives.
- Flexibility – some testators do not want their assets to pass outright to their beneficiaries, if there is a risk of disputes among heirs. Instead they may prefer to make more personalised arrangements. These may include provision of a source of income for a spouse for life or the education of minor children, without allowing access to capital until later in life. A trust is also a useful means to deal with heirs who have special needs.
- Continuous source of income – unlike an estate, where the assets of the deceased are frozen pending the appointment of an executor, a trust can continue to provide a source of income for the deceased’s dependants.
Benefits outweigh disadvantages
The main reason for holding assets in a trust has always been asset protection and wealth preservation. Despite changes to the law that have removed certain tax benefits, the advantages of holding assets in trust still outweigh the negatives.
Legal advice is essential
Trusts are complex legal entities. An attorney with experience of trusts and estate planning can help you set up your trust and complete all the documentation and steps necessary to register and manage the trust. Cape Town law firm Simon Dippenaar and Associates can help you with all aspects of trust administration. Give attorney Simon Dippenaar a call on 086 099 146 or email firstname.lastname@example.org.
The information on this website is provided to assist the reader with a general understanding of the law. While we believe the information to be factually accurate, and have taken care in our preparation of these pages, these articles cannot and do not take individual circumstances into account and are not a substitute for personal legal advice. If you have a legal matter that concerns you, please consult a qualified attorney. Simon Dippenaar & Associates takes no responsibility for any action you may take as a result of reading the information contained herein (or the consequences thereof), in the absence of professional legal advice.