Welcome to Episode 8: Trusts-The Treasure Chests with Terms.

In this episode, we’re embarking on a crucial journey into the world of trusts, those enigmatic tools that not only safeguard assets but also pass on legacies with precision. This is a topic of utmost importance, and navigating this terrain requires a map you can’t afford to misread, and you need a seasoned expert in this field.

So, let’s unlock the mysteries of trusts and explore my true passion: Legacy and Leadership: The Art of Blending Family and Business.

Trusts can seem complex, but don’t worry—I’ll guide you through making them work for your family business structure using “Family Constitutions.” We’ll delve into the corporate governance of your family-owned business, succession plans, and how these tools can help ensure a smooth transfer of your business or family wealth from one generation to the next.

A structured framework vividly increases the chances of a successful transfer of family wealth and ownership to future generations:

It’s crucial to understand that trusts have evolved. They are no longer the vehicles they once were for asset protection and tax benefits. Legislative changes have reshaped how we use trusts. In the past, they were fantastic for tax savings, but today, we don’t recommend trusts as trading entities due to the high tax rate (45%), this basically forces the Trustees of the Trust to distribute all profits annually to beneficiaries, which defeats the purpose of wealth creation and protection. Instead, we’ll explore how trusts can be used in a company structure to protect assets, secure them from estate duty tax laws, and serve as governance and succession planning tools for future generations.

Think of a trust as a treasure chest with terms—a robust vessel designed to protect your wealth, navigate the shifting sands of estate duty tax laws and ensure that your legacy is passed on with precision.

Let’s delve into the world of trusts, unravel their mysteries, and understand their evolution and benefits.

Sounds Complicated? The Glass Castle Business Hub specialises in family-owned businesses and complex business structures. Why not book a FREE 3-hour session to discuss how we can protect your family’s wealth? Email: me Barteld Bakker at bart@theglasscastle.co.za or my esteemed colleague and our accounting wizard Glenys Dempers at glenys@theglasscastle.co.za

The Basics: What is a Trust?

A trust is a legal arrangement where one party (the trustee) holds and manages assets for the benefit of another (the beneficiary). The person who creates the trust is known as the grantor or settlor. There are various types of trusts, but we’ll focus on the Inter-Vivos (or living) trust, created during the grantor’s lifetime, and the family trust, often established to manage and preserve family wealth.

The Advantages of Trusts: The Treasure Chest’s Gold

1. Asset Protection:

Trusts shield your assets from creditors, lawsuits, and other potential claims. This protection is invaluable for business owners, professionals, and individuals with significant assets. However, certain critical “Small print” is often left out to sell you something. We are all about transparency and integrity, so we will advise you on what the do’s and don’ts are when you are managing a Trust.

2.Tax efficiency:

Trusts can be structured to take advantage of various tax benefits, including income splitting and capital gains tax exemptions, resulting in substantial savings. But the major use for Trust is Estate duty tax protection and the ability of a Trust to be transferred from generation to generation without complications and freezing of assets.

3. Avoidance of Probate:

Assets held in a trust do not go through probate, ensuring a smoother and quicker transfer of assets to beneficiaries.

4. Control and Flexibility:

Trusts allow the grantor to set specific terms and conditions for how and when assets are distributed, ensuring responsible family wealth management. We set up a Family Constitution to manage the corporate governance of the Trust and a formal succession plan to plan for generational transfers before they actually occur, therefore enhancing the probability of a successful transfer.

5. Privacy:

Unlike wills, trusts remain private, keeping your financial matters out of the public eye.

6. Continuity and Stability:

Trusts provide a mechanism for continuous asset management, ensuring family members and beneficiaries are cared for without interruption.

The Disadvantages of Trusts: The Terms and Conditions

1. Complexity and Cost:

Setting up and maintaining a trust requires legal expertise and can be costly. The Trust deed is only the foundation of a Trust, and you will need a formal Family Constitution and succession plan, which are reviewed consistently to ensure the Trust is aligned with the family’s values and belief systems.

2. Loss of Control:

Once assets are placed in a trust, the grantor relinquishes direct control, its therefore critical to ensure control in your family constitution and to specify how control will be transferred in your succession plan.

3. Potential for Disputes:

Family dynamics can sometimes lead to disputes over the terms and management of the trust.

4. Tax Implications:

Trusts can trigger certain tax liabilities if not structured properly, requiring expert navigation.

5. Whenever you sign sureties or create liabilities in a Trust, you put the Trust at risk and defeat the purpose of a Trust.

Want to find out more? The Glass Castle Business hub specialises in family-owned businesses and complex business structures. Why not book a FREE 3-hour session to discuss how we can protect your family’s wealth? Email: me Barteld Bakker at bart@theglasscastle.co.za or my esteemed colleague and our accounting wizard Glenys Dempers at glenys@theglasscastle.co.za

Trusts and Taxation: An Evolving Landscape

Trusts have long been favoured for tax planning, but the landscape of tax law is ever-changing. Despite these changes, trusts remain an effective vehicle for managing and protecting wealth through estate duty planning, where you pay 20% estate duty tax after your first R3.5 Million of personal assets. (Personal assets include all the beneficial ownership in companies, shares, equities, and properties which a person can acquire in companies but will still be subjected to estate duty taxes if the beneficial owner of that instrument passes on)

The Evolution of Trusts with Tax Law

1. Early Tax Benefits:

Initially, trusts minimised estate taxes and transferred wealth across generations with minimal tax impact.

2. Regulatory Changes:

Tax authorities introduced regulations to curb potential abuses, including stricter reporting requirements.

3. Modern Tax Planning:

Today, trusts still play a crucial role in tax planning but require careful consideration and expertise.

Trusts as a Blueprint for the Future – Leaving your legacy

Imagine standing at the helm of your family’s future, holding a treasure chest filled with the fruits of your labour and your dreams for your loved ones. A trust is not just a legal instrument; it is a blueprint for the future, a testament to your commitment to those you hold dear.

Crafting Your Legacy with Precision

Creating a trust is like crafting a masterpiece. It requires vision, precision, and expert guidance. By establishing a trust, you protect your assets and ensure that your values and wishes are upheld for generations through the use of family constitutions and succession plans.

Navigating the Terrain: The Importance of Expertise

Navigating the world of trusts requires expertise. Just as a ship needs a skilled captain, your journey in establishing a trust needs professionals who understand the nuances of trust law and tax planning. Their guidance helps you avoid pitfalls and make informed decisions.

Talk to an Expert?

The Glass Castle Business hub specialises in family-owned businesses and complex business structures. Why not book a FREE 3-hour session to discuss how we can protect your family’s wealth? Email: me Barteld Bakker at bart@theglasscastle.co.za or my esteemed colleague and our accounting wizard Glenys Dempers at glenys@theglasscastle.co.za

A Legacy of Love and Security

A deep desire to care for and protect your loved ones is at the heart of every trust. A trust ensures your children are provided for, your spouse’s financial security, and supports charitable causes close to your heart. It enables you to create a legacy of love and security.

Unlocking the Treasure Chest

As we conclude our exploration of trusts, envision yourself unlocking the treasure chest—a chest holding wealth and the essence of your life’s work and aspirations. With the correct terms, this chest becomes a powerful tool, ensuring your legacy is preserved and your wishes are honoured.

By embracing the concept of trust, you take a proactive step towards securing your family’s future. You craft a narrative of wisdom, foresight, and commitment. In the grand tapestry of life, let your trust be the thread that binds generations, weaving a story of protection, continuity, and love.

Remember, establishing a trust is not a journey to undertake alone. Seek expert counsel, trust their guidance, and confidently embark on this path. Your trust is more than a legal document; it is a testament to your dedication and a blueprint for a future filled with promise and security.

Why not talk to an expert in the field?

The Glass Castle Business hub specialises in family-owned businesses and complex business structures. Why not book a FREE 3-hour session to discuss how we can protect your family’s wealth? Email: me, Barteld Bakker, at bart@theglasscastle.co.za or my esteemed colleague and our accounting wizard Glenys Dempers at glenys@theglasscastle.co.za