Why people build a trust — and why it is rarely about income tax
A trust is a long-term estate-planning tool, not a tax shelter. If anything, a trust is taxed harshly: income it keeps is taxed at a flat 45% — the highest rate in the system — and it pays capital gains tax at an effective 36% (an 80% inclusion rate applied to the 45% rate). An individual, by contrast, is taxed on a sliding scale and pays CGT at a top effective rate of just 18%. So the income-tax case for a trust is weak; the conduit principle exists precisely so income and gains can be vested in beneficiaries each year and taxed in lower hands instead of staying in the trust at 45%.
25 February 2026 – No changes in percentages but changes to exclusions (see in bold below): Type 2027 2026 2025 2024 2023 2022 Individuals and Special Trusts 18% 18% 18% 18% 18% 18% Companies 21.6% 21.6% 21.6% 21.6% 21.6% 22.4% Other Trusts 36% 36% 36% 36% 36% 36%
Note — 18% is the top individual (and special-trust) rate; 36% is the standard (ordinary) trust rate; a company is 21.6%. These are effective rates — the inclusion rate times the relevant income-tax rate.
The real reasons to use a trust are four longer-term goals: pegging the estate, protecting assets, continuity across generations, and providing for family. We take each in turn. If you want to weigh a trust against simply holding through a company instead, see trust versus company.
Pegging the estate
The first reason is to peg the estate. Once an asset sits under the trust, its future growth accrues to the trust, not to the founder. The founder’s estate is fixed at the value of what they took out at the time — usually a loan account — so years of capital growth no longer inflate the dutiable estate. On death, estate duty is levied at 20% on the dutiable estate up to R30 million and 25% above that.
Be precise about two different R-figures. The R3.5 million section 4A abatement is a deduction from the dutiable estate (a slice that is duty-free); the R30 million figure is the point at which the duty rate steps up from 20% to 25%. They are not the same thing — the abatement reduces what is dutiable; the band split decides the rate on what remains. The Act sets both out:
At a rate of 20% on the dutiable amount of the estate as does not exceed R30 million; and 25% of the dutiable amount of the estate as exceeds R30 million.
Note — The 25% tier above R30 million applies to the estate of any person who died on or after 1 March 2018; before that the rate was a flat 20%. The same SARS guide lists the section 4A abatement (the duty-free slice deducted from the net estate) at R3 500 000, in force since 2007.
From 1 March 2018, donations tax is levied at a rate of 20% on the aggregated value of property donated not exceeding R30 million, and at a rate of 25% on the value exceeding R30 million ( section 64(1) ). … The first R150 000 of property donated in each year of assessment by a natural person is exempt from donations tax (section 56(2)(b)).
Note — These are the standing figures, restated in the 2026/27 Budget Tax Guide. Section 7C turns the interest you waive on a loan to a trust into a deemed donation, so each year’s waived interest is set off against the same R150,000 exemption — and donations above it are taxed at 20%.
Asset protection
The second reason is asset protection. Because the trust — not the founder — owns the asset (here, the shares in the property-holding company), the asset is generally beyond the reach of the founder’s personal creditors. The Trust Property Control Act reinforces this by keeping trust property legally separate from the trustee’s own estate.
Trust property shall not form part of the personal estate of the trustee except in so far as he as the trust beneficiary is entitled to the trust property.
Note — This is the in-force statutory wording (it has never been amended); the gendered “he” is the original 1988 text. It is what makes trust property creditor-remote: the asset is not the trustee’s to lose.
That separation is the legal engine of asset protection — but it only holds if the trust is genuine. Where the founder keeps real control (dictating trustee decisions, treating trust assets as their own), a court may treat the trust as the founder’s alter ego and look through it, exposing the assets to the founder’s creditors and undoing both the protection and the tax position. This is the Parker problem. The Supreme Court of Appeal held that the whole idea of a trust is to keep ownership and control apart from enjoyment — and that where the people who control the trust are also the people who enjoy it, the protection invites abuse. The practical answer the court gave is to appoint a genuinely independent trustee.
Two cautions on how far Parker reaches. The independent-trustee guidance is framed as something the Master should enforce on family trusts where all the trustees are related beneficiaries — practical guidance, not a blanket statutory requirement. And the court’s remark that a sham trust’s assets may be reached by creditors was reasoning for a suitable future case, not the basis on which Parker itself was decided. The lesson stands all the same: appoint at least one genuinely independent trustee, hold real meetings, and minute real decisions.
Continuity and providing for family
The third and fourth reasons run together. Continuity: a trust does not die, so the asset need not be transferred — and re-taxed — on each death in the family. The structure outlives its founder, avoiding a fresh round of transfer costs and the disruption of winding up an estate every generation.
Providing for family with flexibility: a discretionary trust lets the trustees decide each year who receives what, which suits a growing family with changing needs. It can hold value for minor children, a spouse, or later generations, and adapt as circumstances change — something a fixed bequest in a will cannot do. A child takes in their own right only at 18, so a trust is also the usual vehicle for holding value for children until they are old enough to manage it:
A child, whether male or female, becomes a major upon reaching the age of 18 years.
When a trust is not worth it
An honest guide has to say when not to bother. A trust carries a real, recurring cost: administration, accounting, the section 7C drip on any loan account, and — if you move an existing asset in — transfer duty or VAT now and the loss of an individual’s reliefs. A natural person selling a primary residence keeps a R3 million capital-gains exclusion and is taxed on other gains at 18%; a trust gets neither and pays 36%. The primary-residence exclusion is an individuals-only relief:
The following are some of the specific exclusions: R3 000 000 gain or loss on the disposal of a primary residence; … Annual exclusion of R50 000 capital gain or capital loss is granted to individuals and special trusts …
Note — A trust is not a natural person, so it never gets the R3 million primary-residence exclusion (nor the R50 000 annual exclusion). Moving a home into a trust forfeits this relief and swaps an 18% rate for 36%.
The bottom line: use a trust where one or more of the four goals genuinely applies and the numbers support it. See costs and fees to put figures to the recurring side of the ledger before you decide.
Frequently asked questions
Rarely, today. A trust that keeps income is taxed at a flat 45% — the highest rate in the system — and pays CGT at an effective 36% (80% inclusion x 45%), against a top individual rate of 18%. The rates only work through the conduit principle, which vests income and gains in beneficiaries so they are taxed in lower hands. A trust is almost never about saving income tax.
It can, but only on future growth. Once an asset sits under the trust, its growth accrues to the trust, not to you, so it does not inflate your dutiable estate. Estate duty is 20% on the dutiable estate up to R30 million and 25% above that. The catch: what you took out — usually a loan account — stays in your estate, and section 7C slowly erodes the value you tried to peg.
It depends entirely on the commercial case. A trust earns its keep where the asset is a let or business property, where future acquisitions will sit under it, or where genuine asset protection and continuity matter. It is rarely worth it for an existing home, where moving the asset in triggers transfer duty or VAT now, an ongoing section 7C cost, and the loss of the individual primary-residence exclusion. Model the numbers before committing.
There is no statutory threshold — it is a cost-benefit question, not a number. Weigh the once-off setup and transfer costs and the recurring annual cost (administration, accounting, the section 7C drip on any loan account) against the long-term estate-duty saving on growth and the value of asset protection. A trust starts to make sense where there is meaningful growth to peg or a real protection need — not merely a large asset you intend to keep using personally.
Generally yes, if it is genuine. Because the trust — not you — owns the property, it is normally beyond the reach of your personal creditors, and the Trust Property Control Act keeps trust property out of the trustee’s own estate. But the protection collapses if you keep real control: if you treat the trust as your alter ego, a court can look through it and expose the assets, as in the Parker line of cases.