Financial planning in an era of changing laws and economic pressures

As estate planning becomes increasingly complex, trusts remain a cornerstone of wealth protection. Offering a strategic way to manage and preserve family assets across generations, they provide unmatched benefits.

However, evolving tax laws and financial challenges have raised questions about their continued relevance in today’s wealth management landscape.

FAnews spoke with Daniel Ryan Marsh, Director at Marsh Fidelity, FISA member, and FPSA® professional, to gain insights into the evolving role of trusts in modern estate planning.

The evolving role of trusts

“Historically, trusts were used exclusively by wealthy families to avoid taxes and protect family assets,” says Marsh. “In modern estate planning, the role of trusts has developed to become a common way for individuals and businesses to manage and protect high-growth assets, family interests, and special needs individuals.”

This evolution underscores the adaptability of trusts, ensuring they remain relevant across various financial contexts.

When comparing traditional trusts to modern estate planning tools, Marsh notes, “Estate planning today involves a variety of vehicles, from different types of trusts to tailored investment and insurance options.”

He highlights how advancements in trust management software have made these tools more accessible and cost-effective.

“Affordable software helps professionals manage data and legal requirements, ensuring compliance on an annual basis,” he adds.

Regulatory changes and their impact

South Africa has seen significant regulatory changes in recent years, reshaping how trusts are managed. “In 2023, several updates came into effect, such as defining ‘accountable institution’ and ‘beneficial owner,’ specifying disqualifying criteria for trustees, and introducing enhanced requirements for maintaining beneficial ownership information,” Marsh explains.

These changes aim to increase transparency and accountability, reinforcing the trust framework in the face of evolving governance standards.

Trusts in a global context

With increasing global mobility, estate planning has become more complex. Marsh points to the implementation of beneficial ownership registers as a major international development.

“These registers are designed to increase transparency about who ultimately benefits from trusts, which is crucial in cross-border estate planning,” he says.

When examining legal trends and case law, some court cases have reaffirmed longstanding principles of trust law. Marsh notes, in the 2023 case of Dhlomo NO and Others v Chalwa NO and Another, the court emphasised the joint-action rule, which requires trustees to obtain authority from co-trustees before acting on behalf of a trust. He also highlights the court’s call for appointing trustees with the Fiduciary Practitioner of Southern Africa (FPSA®) designation to enhance trust management.

Despite the increasing complexity of wealth structures, trusts remain highly adaptable. Marsh underscores their unique tax advantages: “A trust provides complete exemption from estate duty tax when transferring assets from parents to descendants. This is significant, given that estate duty tax is currently set at 20% on a net estate value of R3.5 million and increases to 25% for amounts over R30 million.”

Debunking misconceptions and emerging trends

According to Marsh, one of the most common misconceptions about trusts is their perceived cost. “Many people think trusts are expensive to set up and manage, and only accessible to the wealthy,” he says. “In reality, the long-term cost savings and wealth preservation they offer far outweigh these expenses. Choosing a specialist trustee can ensure effective management and financial savings for families.”

Marsh believes the role of trusts will remain solid. “People are living longer, and a trust can protect you in your old age. In some cases, it can also shield you from others who may want to take advantage of you,” he explains. This longevity, combined with the enduring benefits of trusts, ensures their relevance in the future of estate planning.

Offering advice to wealth managers and estate planners, Marsh says, “Ensure the trust structure is sound for the client. In some cases, a trust isn’t necessary, but in others, forming a trust during a client’s lifetime can yield huge benefits.” Tailored strategies remain key to maximising the advantages of trusts in today’s regulatory climate.

Marsh highlights two major pitfalls in trust management:

1. Incorrectly drafted trust deeds. “Trust deeds must reflect the founder’s intentions and consider all contingencies,” he says.
2. Misunderstandings about control over trust assets. “It’s vital to clarify that assets placed in a trust are no longer under the founder’s control,” Marsh emphasises.

Professional guidance can help avoid these issues, ensuring the trust serves its intended purpose. Despite challenges and misconceptions, trusts remain one of the most effective tools for wealth preservation and estate planning. As Marsh concludes, “By ensuring proper structuring and compliance, trusts continue to safeguard wealth for generations to come.”

Writer’s Thoughts

As wealth management strategies continue to evolve, trusts remain a vital tool in preserving and protecting family assets for future generations. By adapting to changing tax laws and global trends, trusts continue to offer unparalleled benefits in today's complex financial landscape. As the landscape of estate planning continues to shift, are trusts still the most effective strategy for safeguarding wealth, or is it time to explore alternative solutions? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.