Page 54 - Q&A 2019/2020

Do trusts still have a role to play in estate
planning?

Nanette Janse van Rensburg
September 2019

“My wife is pregnant with our first child and I am considering whether to set
up a family trust for estate planning purposes. Lately however I have read
negative commentary about using trusts, particularly anti-avoidance tax
legislation aimed at trusts. I don’t want to start a family trust if it’s not going to
be beneficial. What advice do you have in this regard?” Commercial

There has been negative press regarding trusts in estate planning and
particularly in respect of tax issues relating to trusts. In particular section 7C of
the Income Tax Act, 58 of 1962 has been discussed regularly. In the past it was
common practice to sell assets to a trust while extending an interest free loan
to the trust. The seller would then donate a R100,000.00 (individuals can donate
R100,000.00 per year without incurring donations tax) to the trust every year until
such time as the loan was written off and the trust owned the assets.

In terms of section 7C any interest rate of less than 8% in respect of loans to trusts
is now regarded as a donation. An amount equal to the difference between 8%
interest and the interest actually incurred by the trust will therefore be subject to
donations tax. Loans of R1,250,000.00 or less will not attract donations tax, as an
8% interest rate applied to R1,250,000.00 is equivalent to the annual donations
allowance of R100,000.00.
Section 7C is of course problematic should a trust be created solely for the
purpose of saving on tax and estate duty. However, trusts that are used rather
as an estate planning tool hold many other benefits and will always have an
important role to play in asset protection.

The following are some of the benefits of the use of a trust as part of your overall
estate planning:
• Continuity - a trust survives the life of an individual and can span over
multiple generations.
• Protection of assets from creditors and/or matrimonial disputes,
because if assets are moved to the trust by the founder, these will no
longer be owned by the founder in his or her personal capacity.
• Prevents assets being squandered and ensures better managment of
trust assets for future generations.
• Protection of the inheritance of minor children. If a will does not make
provision for a testamentary trust for minors, any benefit bequeathed
to a minor will go to the Guardian’s Fund. There is limited access to
these funds and the funds are normally invested at below market
interest rates. It is also important to note that only money can be

48