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Trusts and Estate Planning

I’m often asked to help someone form a trust so that they can save on tax.

My first response disappoints them, because a trust does not save any tax in the short term, unless you abuse its purpose and use the conduit principle to syphon income  out to low taxed beneficiaries. And even that can easily fall foul of s7 of the Income Tax Act.

My second response, however, always wakes them up.

If you build wealth in your own name, or even worse in a company that you own, then you will lose a third or more of it in taxes when you die (or, if you’re married, when the second of you dies).

Yes, one third!

If, sensibly, you had built that wealth within a trust structure, there would be zero tax on your death. Simply put, when you die, the trust does not die.


  1. Lehlohonolo Samuel Dhlamini

    Hi, I have registered a Trust: Mozansi Trust and want to transfer my Assets to it and how can I link it with my Pty Ltd and also do Social Responsibility with it, and my son was a beneficiary ,can I form a new trust to be incorporated in my new Pty LTD

    Kind regards
    Cell/What’s app
    072 3682564

  2. The related consideration is that post-retirement a well managed investment fund, with modest drawdowns, can grow substantially over 20+ years that the person might live.
    Similarly, inflation and price appreciation might mean that a family property held over the period creates both a significant capital gains tax liability at death, while also pushing up the liability for estate duty.

    It’s important to look not only at current asset values but also to project what they will be at time of death.

    Another aspect is that as we live longer, so the probability increases that we outlive our ability to manage our financial affairs. Having assets managed in a trust avoids the need for a curator.
    It also avoids the risk of a spouse being unable to provide for his/herself because all the money is tied up in the estate and the executor is unwilling to make an early distribution.

    1. Hi Dave,
      Pleased to see you reading my articles.
      I’ve never been a fan of managed investment funds, but I can’t expect you to agree with me on that one. 🙂
      I take the view that the allowances will be adjusted over time to accommodate the inflationary effect on the family property, since that’s what they are principally there for.
      I agree with your other comments. Those are just some of the reasons for growing one’s wealth within a trust structure.
      My book “16 Steps to Wealth” covers them all.

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