Page 21 - Nexia SAB&T Trust Guide 2024

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 and increased disclosure requirements of trustees.
■ Must be relinquishment of control. 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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