When one considers estate planning and investments everyone must consider which financial structure best suits them. One may accumulate and preserve wealth in their individual capacity, through a company or a trust. However, accumulating wealth in your personal name provides the highest form of risk.
In this article we compare the use of a company versus a trust in wealth planning and preservation.
It is important to reflect that both companies and trusts are used as instruments for estate planning, accumulation and preservation. Both need to have an entity or natural person to establish them. With an incorporator playing the role for companies and founder or donor playing the same role for a trust. Both have perpetual existence beyond the lives of the incorporators and founders.
However, the following reflects the differences between the two.
The two entities are established in terms of different statutes. A company is established in terms of the Companies Act of 2008. A trust is registered in terms of the Trust Property Control Act of 1988
A company is a juristic entity which can sue and be sued in its own name while a trust is not a legal entity but can have legal capacity through the services of the trustees.
The management of the affairs and governing document of a company is the Memorandum of Incorporation (MOI). A trust deed performs the same for a trust. One person can own a company whereas a trust must have a minimum of two trustees.
Companies and trusts are taxed very differently. The maximum tax ratio for a company is 28% while for trusts it is 45%. If you invests in properties for income generation and investment you will need to consider purchasing the property in a company. The reason being to minimize on the tax burden.
