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Thursday, April 3, 2008

Personal affairs through a Trust

Reason number 1 ? protect your assets from creditors.

When you run your affairs in your own name you expose all your assets to the mercy of creditors. So if you ever get into financial trouble you could end up losing everything but the shirt off your back! One of the main benefits of a trust is that you are able to separate yourself from your assets, thus providing protection of those assets from creditors in the event of you ever being sued. With the correct estate planning you are even able to protect your business assets from creditors as well.

Reason 2 - You don`t pay executor`s fees with a trust.

Your estate and ultimately your family will pay 3.5% plus VAT or 3.99% of the gross value of your estate away in executor`s fees. But if you manage your estate through a trust, NO executor`s fees are payable. It doesn`t seem like much but listen to this example to get an idea of what 3.99% of the gross value of your estate could amount to.

Work out your own current scenario by taking the value of your gross estate today and multiplying it by 4 and then multiplying that amount by 3.99%. This will work out the kind of saving you would benefit from if your assets were owned by a trust and you died in 12 years time.

The third reason is the state won`t freeze your assets.

When a person dies their estate is immediately frozen and it takes on average two years to wind up an estate. This means that your family has very little access to your assets on your death, potentially causing huge problems for your loved ones. But in a trust, the assets are not frozen, so your family will be able to access your estate immediately.

Reason number 4: you get absolute security in the event of a disability.

If you were in a coma and could not continue to manage your own affairs a curator would need to be appointed by the high court. This would cost thousands of rands even the curatorship is not contested. In a trust all that would happen is that you would be relapsed as a trustee and your affairs would carry on as normal. So your family and business will always remain financially secure, even in difficult or unfortunate times.

Reason 5: You could save 20% in donations tax

You will pay donations tax at a rate of 20% on any donation in excess of R100,000 per annum or R200,000 in the case of married couples. However, with a trust, no donations tax is payable on any capital or income passed to a beneficiary of the trust.
So for example: Let`s assume that you wanted to give R500,000 to one of your children. In your private capacity you would pay R60,000 in donations tax while through a trust you would not have to pay any donations tax.

The 6th Reason is you won`t pay any estate duty with a trust

One of the main disadvantages of running your personal affairs in your own name is that estate duty is paid on the future growth of your assets. But with a trust, no estate duty is payable.
So for example: You pay estate duty at a rate of 20% on net assets in excess of R3 500,000. So if your net estate was worth R5,500,000 and you died leaving your entire estate to your children they would pay an estate duty fee of R400,000. If these assets were in a trust NO estate duty is payable.

And lastly -
You are able to regulate your ex spouse`s maintenance with a trust
A main disadvantage in case of a divorce is the fact that if maintenance is paid for a child to an ex-spouse, the ex-spouse would have a capital claim against your estate for all future maintenance at the time of your death.

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