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A family trust is recognized as the best way to ensure that family wealth is protected over generations. Having a family trust means minimising risk to assets through the separation of those assets from the donor’s estate.

To go further into what it means to have a family trust, one needs to look at the different types of family trust you can set up.

Family Trust classifications – and what they mean for family members:

The basic structure of all family trusts: The ‘donor’ transfers assets to the trust. Appointed trustees (accountants or family members or any other appointed persons) administer the trust. The trustees hold the assets for the benefit of the beneficiaries.

A family trust can be a:

  • Bewind trust – the beneficiaries have ownership of the assets, but the trustees have legal control of the assets (including tax payments)
  • Curatorship or Special trust – the same as a Bewind trust, but specifically for benefit of a beneficiary who is not capable (or considered capable – a decision that can be made in a court of law) of administering their finance themselves. Curatorship trusts will, by their nature, extend to the lifetime of the beneficiary in the case of the beneficiary being permanently disabled, or until a beneficiary comes of age for underage beneficiaries, or is legally deemed capable.
  • Vesting trust – the income or assets of the trust are vested in the beneficiaries.
  • Discretionary trust – the trustee(s) have the discretion to what gets distributed to the beneficiaries.

A family trust can also be:

  • ‘Inter vivo’– i.e. set up to operate while the benefactor is still alive. An example would be when the benefactor keeps some assets for themselves and puts the rest in a trust for their children for investment purposes. Another would be if the benefactor is incapacitated. A third example would be if the benefactor wants to protect assets currently under threat, for the future benefit of their family members. A fourth would be the division of assets or full transfer of ownership as part of a tax plan.
  • Testamentary – trusts set up as alternative to, or part of a will. These are the most common Family Trusts; they come into effect on the death of the beneficiary. These trusts have historically been better options to wills, as they have a number of advantages:

The Advantages of a Family Trust.

There are numerous advantages to setting up a family trust of any type. The advantages will drill down through the structure of the trust to the individual terms, and so they are varied. However, they all stem from these main areas.

  • Risk management benefits:
    1. Protection from family members who might mismanage their wealth
    2. Freedom to diversify investment portfolios and tax structures to make the most of asset income and maintain capital. Trust structures with shared family wealth can also be done to maximise long-term benefits for financial health of beneficiaries’ children.
    3. Protection of assets against unforeseen events, death and sale to third parties, beneficiary to disability/incapacitation
    4. Protection against creditors if the donor dies while in debt.
  • Tax benefits / protection of asset value – from South African tax exemptions on Capital Gains Tax and Estate Duties, to International Investment-related tax breaks – incentives, tax exemptions and benefits.
  • Family wealth planning and protection – trusts are the best way to maintain and increase family asset value over generations. Family asset capital is not sub-divided and taxed until there’s little left
  • Income generation – the capital held in trust can generate incomes for various members of the family – as per the terms of the trust. This gives benefactors the option of not handing over their wealth to someone who might squander it. However, it also means that family members can derive income from the trust, while still retaining valuable capital investments for their future, and that of their children.
  • Income distribution – (and financial resources for their care), to minors, disabled or otherwise financially incapacitated family.

The creation of a trust structure is only the beginning of the journey to reach the destination of asset protection. So allow TAT to assist in creating your Family Trust and we will administer and execute your family trust with exemplary executorship.

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Erasmus Pretorius

With over 23 years of unwavering expertise, I am a seasoned Chartered Accountant committed to financial excellence. My journey in the realm of finance has been marked by astute strategic insights, meticulous attention to detail, and an unyielding dedication to precision. Over the years, I’ve navigated the complexities of financial landscapes, providing invaluable counsel to diverse clients. My proficiency extends across auditing, taxation, and financial management, coupled with a profound understanding of regulatory frameworks. As a registered professional, I have consistently upheld the highest standards of integrity and ethics, earning a reputation as a trusted advisor in the dynamic world of finance.