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Trusts and Estate Planning

Let’s suppose that your parents are both 65 years old.

They own

  • shares in a (Pty) Ltd company which you run worth R5m. Cost zero
  • their home worth R5m. Cost R3m
  • a company which owns unbonded investment properties worth R10m. Cost R7m

Should they form a trust?

Let’s assume that

  • the trading company value will increase by 5% a year on average.
  • nominal property values will increase at, say, 9% per year on average.
  • inflation averages 7%

Now let’s suppose that at least one of them lives to be 85 years old. What will be the nominal values of their assets in 20 years’ time?

  • trading company R13m
  • home R28m
  • investment company R56m

Their estate will be valued at R97m. The second dying will be deemed to have sold their assets to their deceased estate at the moment of death at market value.

With a Base Cost of R10m and a deemed selling price of R97m, a capital gain of R87m less the R2m Primary Residence allowance, will be deemed to have been made and CGT of about R15m is payable by the estate.

That leaves an estate of R82m. Take off the R7m allowance and the Estate Duty will be R15m.

Total tax payable on death R30m, which has a present day value of R7,7m

If they form a trust now and sell all their assets to the trust, their tax on death will be

  • CGT about R1m
  • Estate Duty about R2,6m

Which has a present day value of R0,5m

The taxes involved when they sell the assets to the trust are

  • CGT about R1,5m
  • Transfer Duty about R0,4m

Total cost at present day values R2,4m

Saving at present day values about R5,3m

So yes, if they can find the money (perhaps even by selling an asset) to pay the immediate taxes, there’s a definite benefit in forming a trust even at this advanced stage of their lives.




  1. Hi, would section 7c interest not make a material difference to these calculations as well? thanks

    1. Hi Tristan,
      Yes, it could be significant. The trouble is if I start discussing s7C in an article of that nature, I’ll end up confusing the reader. So I like to keep my comments short and simple. No one is going to read an article then dash out and form a trust. They normally book an appointment with me and we discuss their specific circumstances.

  2. i agree with the main principle that when looking at a trust, you need to look at future values not present values wrt estate duties.
    For a fair comparison, one also needs too look at the ongoing cost of running a trust.

    Your assumptions for appreciation of residential property looks highly optimistic and depends very much on where the property is. In my own suburb of Parktown North, Jhb the average selling prices of residential properties (excl. sectional title) has DECREASED in nominal Rands over the last 10 years.

    I’m also skeptical of the case for putting a primary residence into trust, unless: 1) you need to protect the asset from creditors, or 2) it’s very high value such that the capital gains allowance of R2m is not significant, or 3) it’s a property that you want to keep forever (multiple generations) either as a family home of an investment property [the property you want to live in is not always a good investment property]. In many instances an elderly couple will move out of the house they owned in their 60’s into a retirement village or a downscaled residence.

    1. Hi David,
      The recent few years have indeed hit property values hard, largely I believe due to Covid and interest rates. There was a time when nominal growth was very high. When looking at the long term I take the view that property values will probably average a little above inflation, and in this instance we are looking at the long term. However, all the numbers are just guesses and everyone will come up with a different estimate. It’s the principle that counts.
      I rarely recommend holding a primary residence in a trust for the same reason as you and your case regarding downscaling validates that view. However, none of us knows what the future holds and that’s why there’s no one case fits all. Because I consult at no charge, I speak to literally hundreds of people a year and never suggest any course of action without understanding their circumstances and motivation. What I mostly do is get them thinking, understanding pros and cons and making their own informed decisions. Often, as was the case here, the outcome is unexpected because it sits outside common wisdom and that leads me to write an article.

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