Lebo writes: My brother has suggested that I form a family trust and put my house, car and investments into it in order to protect them. Is this a good idea?
Frank Magwegwe, head of Momentum Personal Adviser Services at Momentum Retail replies:
Trusts are very effective estate planning tools, but care should be taken to ensure that they are used appropriately.
Two of the main reasons for setting up a trust are to protect the assets that are placed in trust and to facilitate the transfer of one’s estate from one generation to the next. Family trusts have come under the scrutiny of SARS in recent years and are subject to high rates of tax. Although the high tax rates can be mitigated to some extent through careful planning, this requires the estate planner to remain abreast of activities in the trust and often requires specialist advice.
Trusts must also be administered properly, which often means obtaining the services of a professional who will charge for providing these services. Before deciding whether to implement a trust, one must consider the benefits of the trust in terms of the protection that it offers in relation to the increased administration costs, additional time required to administer the trust, and the possible negative tax consequences. The outcome of this exercise will provide guidance as to whether a trust should be used or not.
If your financial circumstances are relatively simple, there is no real reason to warrant setting up a trust to protect your assets.