Your investment questions answered

The most important step is to select the right trustees, the writer says.

The most important step is to select the right trustees, the writer says.

Published Nov 26, 2023


Mariska Redelinghuys, Legal Specialist: Advice, PSG Wealth

I am interested in setting up a trust for my family. How do I go about doing so, and should this form part of the family’s financial plan or my personal financial plan?

This is a great question, and it’s important to know that, if used correctly, a trust is a structure which can help with the transfer of wealth across generations in a cost-effective way.

A trust is not a one-size-fits-all solution. Before setting up a trust, get advice from a professional who can help you identify your family’s financial goals and set up a viable plan to reach them. When creating a trust, start with drafting a trust deed - an agreement between the founder of the trust (you) and the trustees for the benefit of income and capital beneficiaries of the trust. This includes key information regarding the number of trustees and how decisions will be made regarding the assets in the trust. Make sure the trust deed is drafted by a professional to ensure the purpose of the trust is served. Then, it’s the responsibility of the Master of the High Court (‘the Master') to register the trust deed and approve the appointment of the trustees.

The most important step is to select the right trustees.

Trustees have a fiduciary duty which entails managing the trust’s assets with care and doing so with the best interests of the beneficiaries. You need to make sure that the nominated person(s) can carry out their duty. It is advised to get the assistance of a professional such as a trust to company who can take up the appointment as corporate trustee as they contain a wealth of experience in trust administration and regulatory requirements.

I would recommend speaking to a financial advisor to assist you with a thorough estate plan to avoid rushing into a decision that could influence you and your family’s long-term financial well-being.

Jac De Wet, Wealth Manager at PSG Wealth, Somerset West

My daughter just turned 21 and I’d like to gift her an investments vehicle with a sizeable amount that can grow over the long term. I have put money aside for this reason, but I need guidance as to which option is best suited as a safe place to start her financial journey.

Before the question can be adequately answered, a few considerations need to be taken into account, so we will assume the following:

Since it is a gift, and you refer to a sizeable amount, donations tax might be applicable and payable by you, the donor. The donation tax rate is 20% for donations above R100 000 and below R30 million. Donations below R100 000 per year are not taxed. Keep that in mind.

The investment you are referring to is a discretionary investment, from where she will be able to make future withdrawals and make additional investments, as and when needed.

She is a South African citizen and taxpayer, with a marginal income tax rate below 30%.

She is investing for long-term capital growth, and she won't have income or capital requirements from the investment in the foreseeable future.

She doesn't have any existing investments.

Assuming the above applies, a sensible approach would be to consider investing the maximum allowable amount of R36 000 p.a. into a tax-free savings investment. The underlying funds of the tax-free investment should have a growth focus (e.g. local and/or offshore equity funds).

The remainder of the amount available for investment can be invested into a discretionary investment with a reputable investment firm, and/or into a managed share portfolio, depending on the investment amount. Again, the underlying funds may have an asset allocation that is biased towards growth assets (i.e. local and offshore equity).

As always it is advised that you seek the guidance of a qualified adviser who can assist and guide you to make an informed, and sensible, decision.

Pierre De Bruyn, Wealth Manager at PSG Wealth, Northcliff

I am a 35-year-old woman and I have recently started a side hustle. My business is starting to gain some traction and I’m seeing a relatively consistent income every month. Are there any ways I can invest some of this income to ensure I have funds for a rainy day?

I assume that you are trading as a sole proprietor and as such the investments can be held in your own name.

Small businesses can experience cash flow needs without warning and therefore any investment should be accessible in the short term. Once you have built an emergency fund to deal with short-term requirements you can start moving some of your investments to the longer-term where you can achieve higher returns but will also experience higher volatility.

I would suggest a spread of investments ranging from cash in the bank to low-risk income funds, higher risk bond funds and even low-equity multi-asset funds further out on the risk /return timeline.

The ideal structure of these investments will depend on the amount of access and time you can afford to wait for the money to become accessible when a need arises.

Money that falls outside the framework of being required by your business can be invested into long-term unit trusts where the ideal term is at least 5 years.

The costs associated with this investment strategy are usually all levied monthly and there are generally no penalties when one needs access to the cash.

I would suggest that you look for a good financial adviser to assist with this. There are many other issues that small business owners experience as their businesses grow, and it is ideal to understand these issues before your business gets too big.

Karen Rimmer, Head: Distribution at PSG Insure

People are shocked when they find out that I don’t have car insurance but I’m a very responsible driver who always obeys the rules of the road. Do I really need it?

One of the most common myths relating to vehicle insurance is that only bad drivers need it. In fact, many South Africans like yourself opt not to take out cover on their vehicles for this reason, fuelled by the belief that responsible driving practices will suffice in mitigating all possible risks on the road.

Unfortunately, no matter how responsibly you drive, accidents do happen, and vehicle insurance provides a safety net for when things go wrong. Vehicle insurance can safeguard you against the high cost of a write-off or expensive damage after an accident if the responsible party does not have insurance. Cover extends to both the actions of the insured driver as well as other drivers on the road. With a few different options available, an insurance adviser can be a great help in finding the right fit for your unique situation and budget.