As the saying goes there is no such thing as a free lunch, and while there are clear financial benefits, trustees need to be aware of the various costs that are associated with creating, running, and maintaining a trust.
The costs involved in forming a trust typically include the fee payable to the party responsible for drafting the trust deed (usually an attorney). There are also Master’s fees payable for the submission of the trust deed.
Costs for transferring assets into or out of the trust
Yes, there are costs involved to do this! These costs would typically include:
- transfer duty & conveyance fees for transferring immovable property,
- investment share portfolios will trigger administration fees and possible Capital Gains Tax (CGT) for the seller, and
- company shares transfer would include accountant or auditor fees for updating the Memorandum of Incorporation (MOI), share register and issuing share certificates, as well as securities transfer tax of 0.25% of the value of the shares. CGT may also be triggered for the seller.
Costs involved in maintaining and managing the trust
Maintaining the trust refers to the administration, bookkeeping, and accounting required to run the trust. The most common costs would include:
- Bookkeeping and accounting fees for the drafting of financial statements and submitting tax returns to SARS, and
- Independent trustee fees, which could be charged as a set fee or a percentage of the market value of assets per year. There may also be additional fees charged for every resolution that needs to be drafted. Section 22 of the Trust Property Control Act permits a trustee to receive reasonable remuneration. The Trust Property Control Act does not, however, contain any further provisions on trustee remuneration.
Evaluating the cost vs benefit (i.e., is the cost of a trust worth it)
When deciding on the pros and cons of a trust, you must weigh up more than the cost only. (Although, in saying this, it is important to understand the costs that will be incurred, and the trusts should be formed for the appropriate purpose when taking this into account.)
Transferring assets or funds to trust may result in donations and loan accounts. Donations may result in donations tax and loan accounts may result in the dreaded ‘Section 7C tax’.
It is highly recommended that a comprehensive costing exercise is done before embarking on forming a trust. For those who already have a trust in place, a comprehensive assessment should be performed annually to ensure that the status and purpose of the trust is aligned.
For more assistance with your trust matters please feel free to reach out to me.
