Page 26 - Nexia SAB&T Estate Planning Guide 2024

therefore advisable for distributions to be made to the beneficiaries in the
same year as income is received.
n The trust acts as a conduit through which income flows. Income flowing
through a trust to beneficiaries retains its identity. Therefore, interest received
by the trust is also treated as interest received by the beneficiary and is thus
taxed in the beneficiary’s hands.
n Where income is taxed in the hands of the trust, any subsequent distribution
thereof will not again attract tax in the hands of the beneficiary.
Trusts as financial and estate planning tool
n Trusts offer various benefits to the estate planner in that they can serve
a dual function of protecting assets as well as creating certain taxation
benefits.
A To protect minor beneficiaries and incapacitated persons
n Setting up a special trust for a mentally disabled or incapacitated person
allows for the safe custody of assets while at the same time benefitting from
lenient tax treatment from an income tax and capital gains tax perspective.
n Setting up a testamentary trust for the benefit of minor children provides
some income tax benefits as well as preventing any funds being held by the
Guardian’s Fund on behalf of the minor.
B Protection against creditors
n A discretionary trust may enjoy creditor protection in the case of an estate
planner or beneficiary’s insolvency (subject to insolvency rules).
n Where the asset was transferred to the trust while the estate planner was
solvent it would be difficult for creditors to set aside the trust transaction.
n Where there are vested rights – the protection is only afforded to those assets
in which the insolvent has no vested rights.
C Estate duties
n If properly planned, managed and controlled, a trust can act as a significant
shelter against future estate duties.
n The estate planner may transfer assets with growth potential in favour of a
trust, preferably a discretionary trust, with his children and grandchildren as
beneficiaries.

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