Inheritance Taxes

Unfortunately, we all have to pay taxes. We get taxed when we are alive and your estate will be taxed when your heir(s) claim their inheritance. To use a trust for estate planning purposes you must transfer your assets into an “inter vivos” trust. It is critical that you hand over control of those assets to the trustees. Trustees manage the assets for the beneficiaries of the trust. If you do not hand over the control of the assets, SARS may consider the assets property of your estate, even though they are in a trust, and as such they will be taxable. The initial trustees are named in the trust deed. The trustees must, however, be appointed by the Master of the High Courts before they are allowed to manage the assets. On this page I am not going to go into details regarding taxation as this information is freely available on the internet.

There are number of ways to transfer assets to a trust. You can donate the assets to the trust but this is not cost effective as you will have to pay “donations tax” on any amount over R30 000 donated per year. You also have to pay the donations tax in the same year you donate the assets to the trust, rather than after your death (which is obviously preferable). Most people feel that, for a trust to be cost effective, it should hold assets of at least R2 000 000.

You can also sell your assets to the trust. Since the trust does not have any money, a loan account will be created in your favour. The value of the loan is considered an asset in the estate of the donor (you). There is also a R1 500 000 estate duty abatement that you need to keep in mind when planning your estate. Leaving up to R1 500 000 to a trust, especially assets that have growth potential, and transferring remaining assets to a spouse will save you a significant amount in estate duty. No estate duty is payable on assets left to a spouse.

When establishing a trust, you need to be aware of the costs involved. And there are many costs involved in the establishment and maintenance of a trust. There are also costs associated to transferring assets to a trust. They include capital gains tax on the disposal of assets, uncertified securities tax on shares, VAT if the asset transferred is trading stock in the donor's hands and transfer duty if the trust is buying property.