An analysis of the risks associated with estate duty in retaining control over trust assets

Abstract

The use of trusts to minimise estate duty and other taxes has recently come under scrutiny from government. The DTC has proposed amendments to income tax legislation to serve as a deterrent against using trusts to avoid estate duty. Such amendments will, however, only discourage the use of trusts if the trust assets generate a significant amount of income and the donor of the assets or the beneficiaries of the trust have little or no other taxable income. The objective of this paper is to identify the estate duty risks associated with retaining control over trust assets. It was concluded that trust assets are only at risk of being included as deemed property in the estate of a deceased person where such person had, immediately prior to death, the legal competence to dispose of such property for the benefit of himself or his estate and that the conduct of the planner was not a relevant consideration in determining whether trust assets could be deemed property. However, the conduct of the estate planner with respect to trust assets could potentially lead to the inclusion of the property as actual property in his estate, particularly in circumstances where the trust was his alter ego and trust property was treated as his own, where the trust arrangement is regarded as simulated or where there was no intention to create a trust.