Building Generational Wealth - Discretionary Family Trusts

Building Generational Wealth - Discretionary Family Trusts: The Do's and Don'ts

Your Estate. Your Family. Is a trust the right move ?

Trusts defined simply:

A discretionary family trust is a legal structure where a trustee holds property or assets on behalf of family members, the beneficiaries. Done right, it is one of the most powerful tools for building and protecting family wealth across generations.

Trust assets do not form part of your estate when you die. They stay in the trust, for the benefit of your family, which can mean significant estate duty savings.

Property held in trust can also be distributed tax-efficiently to beneficiaries and because individual beneficiaries do not own the assets outright, creditors generally cannot claim against them in the event of bankruptcy or legal action.

But there are real traps. Here is what to know before you commit.

The Do's

1. Get legal, tax, and financial advice before setting up a trust or acquiring property in one.
2. Read your trust deed carefully, understand exactly what trustees can and cannot do.
3. Keep proper records of all property transactions, trust resolutions, and distributions (SARS may ask for these).
4. 
   

The Don'ts

1. Don't ignore the tax implications: buying in a trust is not always the right move.

E.g. If you're buying your primary residence, the first R3m in capital gains on sale is tax-free in your personal name. That exemption falls away in a trust.

1. Don't mix trust assets with personal assets as this can undermine the legal protection the trust provides.
2. Don't use trust property for purposes outside the trust's stated purpose.
3. Trustees must act prudently, in accordance with the trust terms and the law.

A trust is a powerful structure. But it only works if it is set up correctly and managed properly.

Speak to us before you sign anything and we can walk you through setting up a trust in-person or via an online meeting.