Trusts, do they still have any significance as a tax planning and estate planning tool?

Abstract

In the estate planning domain, trusts specifically have been “in the line of fire” over a period of time. There have been punitive amendments made to existing trust legislation and new trust legislation introduced which has brought trusts under the spotlight. To compound the problem, trusts are exploited and utilsed as vehicles through which various schemes are developed and implemented to meet illicit objectives. However, despite these drawbacks, at the very core of trusts is where the true and essential purpose of a trust is found in its purest form, which is to protect and preserve assets for the benefit of its beneficiaries. This is the primary focus of the dissertation. The dissertation commences with the origins of trusts to establish the underlying reason why such an institute was created and accepted into South African law. There has been much development of trust law in South Africa since inception which is indicative of the need for the use of trusts. It becomes evident from the indepth analysis about the tax legislation applicable to trusts and the exploitation of trusts, how closely linked these two aspects are. The author agrees that a response to misconduct of the parties to a trust is necessary, but not necessarily through punitive tax legislation. In applying the latter, even the legitimate and well-managed trusts are prejudiced. There appears to be a need for a more stringent approach to deter the parties to a trust from engaging in misconduct from inception of the trust and not only after the problem has arisen. Relinquishing control by the founder or estate planner and complete independence and objectivity of trustees is a huge predicament. It is worth noting though, that the benefits a trust offers has not been lost. Infact it is likely that the benefits of a trust will continue to evolve with each generation. Government’s intervention in making the appropriate resources available to oversee the operation and proper management of trusts is of crucial importance. A trust that is correctly structured, well managed and operates within the legal framework, will undoubtedly reap the benefits for its beneficiaries and contribute to the fiscus and the economy at large.