A family trust brings cost, administration and tax complexity that should be weighed against its planning benefits. An ordinary trust is currently taxed at 45% on taxable income retained and taxed in the trust, and its maximum effective capital gains tax rate is 36%. These rates can make accumulation in a trust less tax-efficient than individual ownership in some circumstances.

Funding can also be complex. Section 7C of the Income Tax Act can apply to certain interest-free or low-interest loans, advances or credit arrangements involving a trust and connected persons. Where it applies, the interest shortfall calculated with reference to the statutory official rate may be treated as a deemed donation, subject to applicable exemptions. A loan owing by the trust to the founder also remains an asset of the founder unless it is validly reduced, repaid or otherwise dealt with.

Administration is another significant consideration. Trustees must follow the trust deed and fiduciary duties, keep trust property separate, maintain proper records and resolutions, comply with annual SARS filing and third-party reporting requirements where applicable, and establish, keep updated and lodge prescribed beneficial ownership information with the Master. A poorly administered trust can lose much of its practical value and may expose trustees and beneficiaries to legal or tax disputes.

See also: What is the negative side of a trust? | What are the disadvantages of a trust in South Africa? | Is a family trust a must?

Disclaimer: The information provided here is intended as general guidance only and does not constitute legal, tax, or financial advice. Every situation is unique, and legislation is subject to change. We invite you to reach out to our team at Wealth and Legacy Group for guidance tailored to your specific circumstances.