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Trusts

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.

What is a Trust?

Find out more about trusts.

Who Needs a Trust?

Find out who benefits from a trust.

Types of Trusts

Learn more about the various trusts.

Get Advice

Contact a financial planner.

What Is a Trust?

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

Who Needs a Trust?

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.

Estate duty
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.

Income tax
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.

Types of Trusts

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:

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.

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:

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.

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.

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.

Sanlam Trust Guardian Trust

When minor children are the beneficiaries of life policy proceeds, insurers are obliged to pay this money to a natural or legal guardian to manage on the children’s behalf. If the guardian decides to use the money for other purposes, or mismanages or misappropriates it, your children will not get the full benefit of the money you planned for them to inherit. Nominating an established trust is the ideal solution, as benefits payable by life policies to minor beneficiaries can be paid out quickly to be managed on their behalf, for their sole benefit, by the trustees of the trust. Find out more

Special Trusts

Special trusts are taxed at the same rate as a natural person and may be created to benefit a person suffering from serious mental illness as described in the Mental Illness Act, No 18 of 1973, or who suffers from serious physical disability. In certain cases, testamentary trusts benefiting any living family member, of whom the youngest turns 21 in a tax year, may also be classified as a Special Trust and therefore taxed at the lower rates.

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

Types of Trusts

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:

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.

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:

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.

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.

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.

Sanlam Trust Guardian Trust
When minor children are the beneficiaries of life policy proceeds, insurers are obliged to pay this money to a natural or legal guardian to manage on the children’s behalf. If the guardian decides to use the money for other purposes, or mismanages or misappropriates it, your children will not get the full benefit of the money you planned for them to inherit. Nominating an established trust is the ideal solution, as benefits payable by life policies to minor beneficiaries can be paid out quickly to be managed on their behalf, for their sole benefit, by the trustees of the trust. Find out more

Special Trusts
Special trusts are taxed at the same rate as a natural person and may be created to benefit a person suffering from serious mental illness as described in the Mental Illness Act, No 18 of 1973, or who suffers from serious physical disability. In certain cases, testamentary trusts benefiting any living family member, of whom the youngest turns 21 in a tax year, may also be classified as a Special Trust and therefore taxed at the lower rates.

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

Frequently Asked Questions

The law requires trustees to act objectively and in the interests of beneficiaries at all times. Trustees must comply with specific legal regulations:

Secret profits
Trustees may, under no circumstances, make secret profits or speculate with trust assets.

Negligence
Trustees must ensure that they have the necessary expertise and show due care when administering trust assets.

Good faith
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:

  • Fellow trustees, beneficiaries and guardians of minor children
  • The South African Revenue Service
  • The Master of the High Court (if requested)
  • The FIC in the event of any suspicions of money-laundering by the settlor or related party

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:

  • Drafting of the Trust Deed and registration thereof (for a living trust only)
  • Master’s fees
  • An acceptance fee for receiving and protecting trust assets
  • A management fee, calculated as a percentage of the assets under management, collected on an on-going basis
  • Tax preparation fee
  • Termination or partial termination fee
  • Auditor’s fees
  • Property management fees
  • Attorney’s fees

Put Your Assets in the Right Hands

Contact a financial adviser today to find out more about trusts and nominating trustees.

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