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USE OF TRUSTS

Before setting up a trust, one should bear in mind the reason for the trust being set up. All stops have been pulled from trusts. A recent article in The Star (11 March 2006) revealed the most important factors to watch for when setting up a trust.

If you are the donor, a trustee and a beneficiary, of the same trust, you are treading on dangerous ground. It may be construed that you are hiding your assets from your creditors and possibly gain tax advantages.The fact is that the trust is there to help plan your estate and to preserve assets for future generations. The fact of the matter is, act in due diligence – failing this, may land you in hot water. Furthermore, you should bear in mind that setting up the trust does not stop there.

It is expensive to run the trust. You must hold annual trustee meetings to show that the trust is not dormant, a banking account must be opened for the trust.

Annual Financial Statements are to be prepared and rendered to S A Revenue Service where the trust must also be registered for Income Tax purposes. The trust is a separate taxable entity for the purposes of the Income Tax Act and must be registered as such.

In short, before you think of setting up a trust ask yourself this question – “What purpose will the trust serve”. By pondering this question, and taking into account the following points, we believe that you will reach your decision comfortably :

The trust will need its own banking account, banking costs are not cheap.

Annual Financial Statements must be prepared. Chartered Accountants are not cheap.

Annual meetings must be held by the trustees and resolutions must be signed by all trustees to reflect the decisions taken at the time of the meeting.

Are the assets being preserved for future generations or is there a specific class of beneficiary?

What you should also bear in mind is that two trust scenarios are imminent.

One is termed a Testamentary Trust that is only set up (or active) upon your demise and the other is termed an Intervivos Trust. An intervivos trust is set up during your lifetime.

Because of the many pitfalls of setting up a trust, you are well advised to think through the process and ponder the facts set out above.