Protect your assets and preserve your wealth.
Who will manage your assets when you’re no longer around? A trust offers an efficient and flexible way of ensuring that your assets are preserved and objectively managed by the right people. Referred to as “trustees”, these responsible individuals are appointed by you to manage your affairs and make decisions that are in the best interest of your beneficiaries. Each person’s needs are individual and unique and your trust should be planned to meet your specific requirements.
Sanlam has partnered with Sanlam Trust, part of Capital Legacy Group and a Sanlam Associate, to give you expert advice on wills, trusts, estates, and related services.
A trust is a legal agreement between an owner of assets and the appointed trustees. Trustees ensure that the assets and the intended beneficiaries of those assets are properly cared for. The trustees undertake to administer the trust's assets to the benefit of the beneficiaries. It therefore stands to reason that the success of a trust lies in appointing the right trustees – people that you believe will always act in the best interest of your beneficiaries and manage your assets in accordance with legislation and stipulations of the trust deed (constitution of the trust). What’s more, a trust's administration must always be transparent to ensure the satisfaction of all relevant parties.
If a minor is an heir to an estate where there is no will, or if there is a will but no testamentary trust clause, the inheritance must be paid into the Guardians' Fund of the Master of the High Court. The same happens in the event of a minor being the beneficiary to the death benefits of a long-term insurance policy.
Where people are unable to take care of their own affairs owing to physical or mental disability or impairment, their assets may have to be placed under the protection of a curator. The Master of the High Court will oversee the appointment of a curator and be required to give permission for all expenses as well as the types of investments to be made.
Certain assets, owing to their nature or circumstances, may not be transferred to more than one person. For example, the Sub-division of Agricultural Land Act, Act 70/1970, currently prevents agricultural land from being sub-divided without the authorisation of the Minister of Agriculture.
When assets are transferred to a trust, they no longer form part of your own personal estate. This means that all growth in the assets occurs in the trust, and not in your own estate, which generates tax savings in the long term.
Capital gains tax
Although capital gains tax is higher in a trust, it is an excellent estate planning instrument.
If non-allocated taxable income is capitalised in a trust, the trust will pay income tax at the present rate of 45%. However, in terms of the ‘conduit principle’, income paid out to or vested in beneficiaries before the end of the tax year will be taxable in their hands at their normal personal income tax rate.
Certain investments, such as shares, unit trusts and endowment policies, have the potential to grow faster than inflation. If you retain these assets in your own hands, they could attract estate duty. Such assets could be held in a trust, effectively keeping the growth in value out of your own estate.
If you’re divorced, remarried and/or have children from more than one relationship, this could complicate inheritances and make your will very complex to administer, resulting in unnecessary delays in settling your estate. A trust may be useful in ring-fencing assets meant for your children from a previous relationship as opposed to assets designed for your current family which may fall into your deceased estate.
A trust can be structured in such a way that the assets do not vest in your hands and therefore do not form part of your estate. In the event of your insolvency, creditors cannot lay claim to these assets, provided you have complied with law.
Testamentary trusts are the most common trusts in use in South Africa. The trust instrument is the last will and testament in which the maker of the will sets out the terms and conditions of the trust. They are especially suited to the protection of the interests of minors and other dependants who are not able to look after their own affairs. These types of trusts come into being only after the death of the testator or testatrix. The trust is administered by trustees appointed in terms of the will, and is usually ended after a predetermined period or at a determined event, such as a minor turning 18 (or any age stipulated by the testator) or the death of an income beneficiary.
There are two types of testamentary trusts:
1 Discretionary trust
Payment of income and/or capital to nominated beneficiaries (or a class of beneficiaries, for instance "my children") is subject to the discretion of the trustees and all non-allocated income is taxable in the hands of the trust.
2 Vested trust
The income and capital beneficiaries are already determined and the trust assets vest in them. The assets are managed by the trustees for and on behalf of the beneficiaries. The income is taxable in the hands of the income beneficiary, who could also be the capital beneficiary. The capital beneficiary therefore has immediate property rights, subject to the terms of the will and the Trust Property Control Act.
Living trusts are ideal for keeping assets with growth potential out of your estate and are a superb medium for limiting estate duty and protecting assets from generation to generation. An inter vivos trust comes into being during the lifetime of the settlor or founder (the person who takes the initiative to create the trust) with the signing and registration of a trust with the Master of the High Court.
An inter vivos trust can take several forms:
1 Family trust
This type of trust comes into being through an agreement between the founder and the trustees. Assets are sold to the trust and a loan account (debt) is created. This loan may be interest-bearing or not – but in the latter case donations tax may arise. Assets can also be donated to the family trust, although this carries donations tax implications. The trust may obtain other assets through purchases or an inheritance.
2 Charitable trust
A charitable trust is classified as non-taxable in terms of the Income Tax Act. Capital loans or distributions are made to a trust, which is structured in a way that it pays no income tax. The trustees then make donations to charities, schools, churches, etc. on your behalf and according to your wishes.
3 Umbrella trust
This kind of trust is linked to and used by life insurance and retirement fund group schemes. It allows unapproved funds (not governed by the Pension Funds Act) to deposit death benefits to beneficiaries who are unable to handle their own affairs, to be managed on their behalf and for their sole benefit, as prescribed by the authorities and relevant legislation. Due to changes in legislation, all benefits linked to employment, such as retirement fund benefits and group life, may be paid into beneficiary funds – this took effect on the 1st of March 2014. These funds are tax-exempt.
A new section of the Income Tax Act – referred to as section 7C – was implemented on 1 March 2017. If you have previously made a loan to a trust or are considering doing so in the future, section 7C may have an impact on the tax treatment of your loan account. Find out more
Please have a look at our frequently asked questions if there is anything that you’re unsure about – otherwise, contact us directly.
The law requires trustees to act objectively and in the interests of beneficiaries at all times. Trustees must comply with specific legal regulations:
Trustees may, under no circumstances, make secret profits or speculate with trust assets.
Trustees must ensure that they have the necessary expertise and show due care when administering trust assets.
Trustees must always act in good faith to each other and the beneficiaries.
Compliance with the trust deed
Trustees are legally bound and obligated to carry out the stipulations of the trust deed or the will, in which the aims, powers and responsibilities of the trustees are documented.
The administration of a trust entails receiving and controlling trust assets, and the protection thereof – which requires that investments are made according to the stipulations of the trust deed, the needs of the beneficiaries and sound investment principles.
The administration also entails that trustees handle all transactions, and requires that they invest assets without speculating and – if required by the deed or the will – make regular maintenance payments to beneficiaries.
In terms of the law, trustees are expected to report to:
Lastly, the administration of a trust entails that trustees must provide advice to fellow trustees and beneficiaries. Trustees administer a trust themselves. If they cannot or will not do so, they may contract agents to take care of the administration on their behalf.
Certain fees are payable during the founding and management of a trust since this is handled by specialists.
The fees are as follows:
Speak to an expert today to find out more about trusts and nominating trustees.
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