Page 18 - Nexia SAB&T Trust Guide 2022

ADVANTAGES AND DISADVANTAGES OF A TRUST

Advantages of a trust
■ Continuity – a trust survives the life of an individual (donor /trustee /
beneficiary) and can span multiple generations.
■ Can protect an individual’s assets from creditors and /or matrimonial and
relationship disputes.
■ Utilisation of services, knowledge and abilities of trustees.
■ Custodianship of assets, preventing assets from being squandered.
■ Management and control of trust assets – e.g. where there may be several
owners of the same asset who cannot agree on how to manage the asset.
■ Administration of an asset for charitable purposes.
■ Tax benefits can be created by the correct distribution of income and
capital gains.
■ Estate duty can be minimised or capped because the growth of an asset is
no longer in the hands of the founder.
Disadvantages of a trust
■ Formation and administration of a trust is costly.
■ Ordinary trusts are taxed at a higher rate on income and capital gains tax on
distributions, if retained in the trust (not applicable to Special Trusts).
■ The possibility of future legislative amendments which may adversely affect
the benefit of a trust.
■ Administrative and Taxation requirements such as:
◆ Legally required to register as a taxpayer, submission of bi-annual
provisional tax returns, and annual income tax return.
◆ Annual financial statements.
■ Onerous duties of trustees.
■ Must be relinquishment of control. The South African Revenue Services
(SARS)may deem income back to the donor of the asset, if there is not
adequate relinquishment of control over the asset.
■ Funding limitations, as a trust cannot receive an interest-free or low-interest
loan without triggering donation tax.
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