Trusts form a significant part of estate planning and, if the recommendations of the Katz Committee are accepted, there will in future be tax implications for trusts that do not exist at present.
If you plan to use a trust - an issue that you are more likely to consider in your fifties than your twenties - you'll have to talk to a professional adviser at some stage, but some background will help you at least ask intelligent questions.
Two terms come up quite frequently when trusts are mentioned: usufruct and bare dominium (see definitions).
According to Karen Holland, a tax consultant at KPMG, because those holding usufructs or bare dominiums have limited rights to the assets, they are valued in a special way for estate duty and income tax purposes.
For example, if a usufruct or bare dominium is sold or donated, the calculation for donations tax purposes is based on whichever period is shorter - the donor's life or the recipient's life. This means the calculation has little to do with the market value of the assets.
Using this feature of usufructs and bare dominiums can help to minimise estate duty, Holland says.
For example, a married man could bequeath his assets to a trust, making his children the beneficiaries, but including a clause that gives his wife a lifetime usufruct over the property. After she dies, the trust would have the overall right to the property.
Holland says if the trust is set up so it only has a limited life, for example one year, then after the death of the surviving spouse who held the usufruct, this can also reduce the value of the estate on the death of the spouse who created the trust.
This is because the value of the usufruct and the value of the bare dominium will be based on the expected life of the trust - in this example, only one year, so the values will be quite low.
There is also an opportunity to use usufruct and bare dominium during the donor's lifetime, Holland says.
This could be done by setting up two trusts and selling or donating the usufruct to one trust and the bare dominium to the second trust.
The value of the usufruct is based on whichever is lower, the estimated life of the donor or the life of the trust - trusts have a deemed life of 50 years - while the value of the bare dominium is based on the estimated life of the trust. So the value attributed to these two items can be reduced significantly for the purposes of estate duty.
The usufruct and the bare dominium should be sold into the trust on a loan account and the value of that loan account can be pegged until the death of the seller.
But it can also be reduced by making a donation each year of up to R25 000 (the first R25 000 of donations a year is tax-free) to the trust in the form of waiving the loan.
"It is important to note that wherever a donation or substantial disposition is made in favour of a trust, there are anti-avoidance laws in the Income Tax Act which could have adverse implications for the donor or seller," Holland says.
She recommends that if you are considering one of these methods you should take advice about the underlying tax implications.