How to protect
trust assets

author image

Marteen Michau

Head of Fiduciary and Tax

Trusts offer an efficient and flexible way of ensuring your assets are consolidated, preserved, protected, and managed objectively by the right people. But a trust can be a complex vehicle and should be set up to meet its specific objectives. How can you adequately protect trust assets? Here’s what you need to know.

Assets held in trust can enjoy protection from:

  • Claims by your creditors
  • Claims by a spouse divorcing you
  • Claims for alleged malpractice against you
  • Non-financially astute children eroding family assets
  • Unscrupulous advisers misleading your spouse after your death
  • Your spouse spending your children’s education fund after your death
  • Your children’s spouses or in-laws getting their hands on your family assets
  • Unnecessary taxes on foreign assets
  • Political and country-specific risks
  • Delays associated with the deceased estate administration process
  • Executors’ fees of 3.99% on assets on your death
  • Capital gains tax of effectively up to 18% on the capital gains on your growth assets on your death
  • Estate duty of 20% (or even 25%) on certain of your assets on your death
  • Assets being frozen on your death in your own name with no access to liquidity for your surviving family members to pay the bills
  • Being a part of the consequences of a marital regime that is in community of property.

How can you ensure that assets do indeed enjoy the appropriate protection?

An offshore trust must be established as an irrevocable discretionary trust. This means the founder should not have the right to cancel the initial donation made to the trust, nor should the founder be able to revoke their instruction to create the trust.

There must be no vesting of trust assets in you, either in terms of the trust deed or in terms of trustees’ resolutions. If you have the right to a percentage or share of trust capital or income, you have vested rights to that percentage or share. If the trust deed provides that the trustees have to distribute certain assets or a particular share of the capital or income to you, you most probably have vested rights to those assets or benefits.

You must not have control over trust assets as if they are your own. You may be seen to have control if:

  • As a trustee, you have a casting vote
  • You have the power to hire and fire trustees acting alone
  • You channel trust payments and receipts through your personal bank account
  • You use your personal assets as security for trust liabilities.

Refrain from dealing with trust assets as if they are your own. Examples include transacting on the trust bank account without having been authorised by the trustees to do so on their behalf, or giving instructions alone on an investment account without authorisation by the trustees to do so on their behalf.

Appoint an independent trustee. Generally speaking, an independent trustee is someone who is not a beneficiary of the trust and not related to a trustee or beneficiary of the trust.

If you’d like advice on whether trust assets are adequately protected, wish to set up a trust or review a trust with regard to control issues, or appoint an independent trustee, please contact Marteen Michau at marteenm@privatewealth.sanlam.co.za.

Thank you for your email, we'll get back to you shortly