Trusts

What is a trust

A trust is a flexible and effective legal vehicle for the protection and management of assets that have been set aside for the benefit of beneficiaries.

A Trust is formed when a Founder contracts with Trustees to manage trust assets for the benefit of the trust’s Beneficiaries. The contract that regulates the trust is known as a trust deed.

The Trustees may only act once the Trust Deed is registered with the Master of the Supreme Court, who issues a Letters of Authority.

Reasons to create a trust

1. Effective management of assets where beneficiaries are minors, insolvents, incapacitated or too irresponsible or inexperienced in money matters.
2. Trusts exist in perpetuity and provide continuity through generations.
3. Protection of your assets from creditors, insolvency or divorce.
4. Benefits at death:
‎‎a. Trust assets not part of deceased estate. Therefore no Estate ‎‏‏‎ ‎duty, no Capital gains Tax (no capital assets are deemed to be sold), no Executors fees, no transfer duty, no conveyance fees.
‏‏‎‎b. Continuity for benefit of dependents, because Trust assets are not frozen, but remain freely available.
c.    Protection and provision for minor beneficiaries – prevent inheritance to be held by Guardian Fund until majority age.
d.    Efficient succession - The protection of your loved ones' financial interests and dependents’ maintenance needs.
5. Tax benefits:
a. Income distributions and splitting–income is distributed and split between more than one beneficiary (conduit principle) and taxed in the hands of the beneficiaries at their lower normal income tax rates.
b. Donations tax - a trust is exempt from donations tax made by the Trust to its beneficiaries.
c. Capital Gains Tax – capital gains are distributed to one or more beneficiaries and taxed in their hands at the lesser tax rate.  

In summary, a Trust is a flexible and effective vehicle for the efficient management of assets that have been set aside for the benefit of beneficiaries.

Legal Requirements

- Written Trust Deed signed by Founder of Trust and Trustees.
- Two or more Trustees, if Founder is Trustee or first two Trustees are related.
- Must have Accountant or Auditor who confirms appointment to Master.
- Registered with Master of Supreme Court, before Trustees may act.
- Registration for Income Tax, annual Financial Statements and Income tax Returns.

What are the benefits of a Trust?

- Protection, management and growth of assets for future generations or where the beneficiaries are minors, insolvents, incapacitated or irresponsible or inexperienced in money matters.

- Your loved ones’ financial interests and dependents’ maintenance needs are covered, and continuity is achieved upon death.

- Protection of assets from creditors, insolvency or divorce.

- Trust assets do not part of a person’s deceased estate, and therefore no estate duty, capital gains tax, executor’s fees, transfer duty, or conveyance fees are payable in respect of assets held in Trust.

- A Trust does not pay income tax on income or capital gains tax on capital that are distributed to the beneficiaries. The income and capital gains are taxed in the hands of the beneficiaries at their lower normal tax rates.

What costs / taxes are involved?

- REGISTRATION COST
Our fee is R3 500-00 (which includes the costs of the Master)

- TRUSTEES FEES
A fixed annual fee must be agreed with an Independent Trustee prior to his/her appointment

- ANNUAL ACCOUNTING AND FILING OF INCOME TAX RETURNS
A fixed annual fee must be agreed with the Accountant prior to his/her appointment

- INCOME TAX
For the year 1/03/2023 – 28/02/2024: 45% of income (not distributed to beneficiaries)

- CAPITAL GAINS TAX
For the year 1/03/2023 – 28/02/2024: Effective rate 36% of capital gains (not distributed to beneficiaries)

Is an independent trustee required?

A vital requirement of a Trust is that the control over the Trust assets (by the Trustees) and the enjoyment of Trust Assets (by the Beneficiaries) must be entirely separate. For this reason, an Independent Trustee is required, when:

- The same person/s are the trustee/s and the only beneficiary/ies. and

- It is a “family business trusts”, where the trust is set up for the protection of family assets, all the beneficiaries are trustees or are all related, and the trust deed empowers the trustees to create debt in the trust.

The appointment of an Independent Trustee is advised whenever:

- Dealings will be done with creditors to convey that the Trust is administered according to professional rules and procedures; or

- The Founder and Trustees agree to include a professional experienced person to ensure objectivity.