Walkers Attorneys

Trusts are the most effective way to legitimately save estate duty.

Often they get a bad press because someone has tried to play fast and loose with interpreting the rules and attracted official attention.

The South African Revenue Service (SARS) occasionally trains its sights on trusts that it suspects have been set up for dubious purposes but, in my experience, properly established and managed trusts attract little heat from officialdom.

In administering some 50 trusts, many of which were created decades ago, and in dealing with clients on a day to day basis our advice is always to ensure that appreciating assets are housed in trusts.

The benefit from this advice is all too evident in that many of the estates we administer fall below the R3,5 million exemption, but the family trust funded by the deceased, has assets worth millions of rands, thereby effecting a 20% saving on such assets.

In a recent case in Durban, Nedbank sought to sequestrate Robin Thorpe, but the application failed as he was penniless and Nedbank was not able to show that there was any “advantage to creditors” in pursuing him.

The bank brought a further application, alleging that Thorpe had been conducting his business through various family trusts, which he used “to insulate his wealth from creditors and thereby frustrate the efforts of his creditors to recover debts owed to them..."

The court found that Thorpe and the remaining trustees “while notionally independent persons may simply be doing Thorpe’s bidding” and that it might well be that “the trust is a mirage used by Thorpe for his own commercial ends..."

The point stressed here is that wherever a trust is no more than a sham and its assets used as if they belong to the founder or a particular trustee, then SARS or a creditor will naturally seek to pierce the veil and try to claim what they believe is their due.

The lesson from this is simple: Trustees must exercise an independent discretion and be mindful of the fact that they administer the trust on behalf of, and in the interests of, others.

By impartially acting for the benefit of the trust and its beneficiaries and undertaking all necessary financial, accounting and secretarial duties, trustees ensure that trusts and their assets are safeguarded and secure from challenge.