Taxrek strongly promotes trusts as an important and vital component within any corporate structure and individually. Why? Trusts are a unique entity created once a contract is entered into between related and unrelated parties for the benefit of others.
A trust consists of trustees (dependent and independent) that administer a trust for the future financial benefit of the trust's beneficiaries.
A trust that owns the shares within a company can distribute any dividends or taxable gains it receives from the company directly onto its beneficiaries, thereby legally avoiding any tax liabilities to SARS.
If an individual owns 100% shares within a company and that individual becomes deceased, the value of shares would become part of his/her estate and either distributed towards their spouse or the company would effectively become non-existent, as the deceased estate would dispose of the shares of the company by selling it to another buyer.
Thus, all the hard work of that shareholder would be taxed in his or her estate.
If a trust was the owner of the same shares, the shares would stay within the trust and therefore the shares would not be transferred and no estate duty implications will exist.
An individual will also avoid estate duty on his/her assets if the trust was the owner of said assets upon the death of the individual.
A trust can also clearly define which assets will be "given" to each sibling beforehand, therefore avoiding the necessity of wills that could be legally contested in court.
Although the tax rate on a trust in South Africa is the highest of any entity (company, close corporation or individual), any taxable income can be and must be distributed to its beneficiaries, whereby the beneficiary would be taxed on said income in its own tax category.
There are numerous types of trusts within South Africa and each one has various legal implications and applications.
At Taxrek, we promote trust structures to be part of every corporate group and individual asset portfolio.