Every day hundreds of people around the country get an unwelcome visit when a court Sheriff arrives at their home with the intent of removing their property – in most cases unlawfully so.
Renier Nell, a director of accounting and tax firm Innovative Accounting Solutions, says that people can avoid this prospect by having all their assets placed in a family trust.
“In the past, claiming that your assets were in a trust used to be a good way to ward off the Sheriff, much like trying to convince him that all the assets in your home belong to your wife. Today, the law has been tightened and you have to provide the Sheriff with proof that this is the case,” says Nell.
This is all the more reason to set up a trust. “A trust can protect your assets in the event that you run into financial difficulty or go through an unfortunate divorce. In fact, protecting your assets is the primary reason that trusts are so popular – everything else is supplementary,” adds Nell.
Over the years things have changed and he explains that like tax and company law, the rules relating to trusts change almost every year. “Before you could set up a trust, place assets in it whether it was property, furniture or even just money and forget about it. However, if this is how you have been treating your trust for the past two decades – forget it, your assets are not protected, you need to do your due diligence.”
In order to secure your assets, the following process needs to be strictly adhered to. “A family trust has to be registered with a complete schedule of its assets lodged with the Master of the Court, and an issued registration number must be used in all communication relating to the trust. A bank account needs to be opened in the name of the trust. The trust account needs to be registered with SARS for income tax and audited annually by an accounting officer,”
“In addition, trustees need to be appointed in order to manage the trust. The trustees will need to have annual meetings with auditors and the minutes of the meeting will need to be kept and archived. Should new assets be purchased in the name of the trust, the relevant registration number will have to appear on the receipt. Any assets used by the beneficiaries of the trust will have to sign a deed of lease; subsequently any policies taken out should also list the trust as the beneficiary. “It is not a valid trust unless all these points are performed – otherwise it’s just like saying your wife owns all the assets,” continues Nell.
The advantages of trusts are that they:
Preserve your assets from creditors, and after your death.
Exist in perpetuity, providing continuity to your children.
Are separate from your name.
Can protect beneficiaries from themselves, such as children or spouses inexperienced in managing money.
Protect business assets from creditors.
The disadvantage of a trust, explains Nell, is that it carries a higher tax rate of 41%, compared to a marginal personal tax rate or corporate tax rate of 28%.
“However, if it is set up correctly the income is normally offset by expenses and little tax is paid, for instance in the case of a home with a bond: As a trust is not part of your estate, it can also save you costs and taxes as there is no estate duty and no fees for winding up an estate, including costly executors’ fees,” explains Nell.
The value of an asset such as your home appreciates in the trust rather than in your personal estate. This can be to your advantage tax-wise.
“There are costs associated with a trust, but most people consider this worthwhile compared to the protection it affords your assets. The costs of maintaining a trust are not as high as you may think. At Innovative Accounting Solutions, we register a trust for R4,500, manage its accounts for R300 per month and do the annual financial statements and all submissions for R1,500.”
He recommends anyone with an old trust to see their lawyer or accountant to review. “It is quite possible that when the time comes when you need the protection of your assets that you thought you had, that the trust can be challenged,” concludes Nell.