Protecting your assets: A guide to trust funds

By Jessie Taylor

Trusts are a popular way for South Africans to protect their assets for their loved ones. Many people opt for a trust as a form of estate planning to ensure their beneficiaries get the most value from their estate.

A trust (sometimes referred to as a trust fund) is a formal transfer of assets via a legal document to a trustee. The trustee is instructed to hold the assets for the benefit of the beneficiaries. One or more trustees can be appointed to administer the trust.

The main reason for setting up a trust is to protect your estate and assets. A trust can protect your family's wealth and is especially beneficial in the event of liquidation, sequestration or divorce.

There are several types of trust options available in South Africa, including: 

• Testamentary trust: This can be established after your death and protects any interests of minors or dependents who may not be able to look after their finances.
• Inter Vivos trust: This can be created while you are alive, and you can protect your family’s wealth for generations to come.
• Settlement trust: This trust can be set up while you're alive to accept any proceeds from life insurance payouts or divorce settlements.

Trusts can be a useful tool in estate planning, especially for those who need to make use of any estate duty or income tax benefits. The trust enables you, as the founder, to divest yourself of your assets, transferring ownership and control of the assets to the trust. A trust is not a living person and can’t have an estate, so estate duty can’t be levied on it. This means that the assets of a trust are not taxable under the Estate Duty Act.

Because a trust puts your assets under the control of a board of trustees who can act in your place, you ensure financial security for your loved ones in the event of your death. This is particularly useful if you have minor children who won’t be in a position to manage inheritances.