Trusts
You may have thought of opening up a Trust, but the costs of doing so may have held you back. You have to take the right step that best suits your needs. We will attempt herein to demystify the insurmountable thoughts and place you at ease in making this decision and costs aside it may benefit you in the long run.
A Trust is not a legal person it commences on creation of an instrument (trust deed), it is a sui generis entity (unique type of entity), which is setup to safeguard the interest of the founder of the Trust who may be absent or passed away. The Trust Deed essentially details the rights and interests of a beneficiary or beneficiaries in the Trust property and the Trust Property Control Act largely deals with the administrative, the trustees’ duties and authorization relating to Trusts.
A Trust is set up by an individual, company or a number of persons to protect their assets against creditors or during a time of hardship or any other claimants. The assets placed in the trust does not fall within the personal estate of the founder or trustee(s), unless the trustee is named as a beneficiary of the trust and as such is entitled to the enjoyment of the trust property as provided for in the trust deed. So when you pass on your estate winding up will be administered separately from any such properties that have been placed in your trust. Upon the death of the founder the successor trustee(s) takes over and distributes the assets to the beneficiaries as catered for in the trust deed or hold the assets the trust instrument will guide the trustee.
Types of Trusts in South Africa:
- Inter Vivo Trust this is a living trust
- Testamentary Trust being on the death of the founder also known as a Will trust
- Bewind Trust is when the trustees have control over the assets owned by a minor under the trust until the minor reaches majority
- Others are for example offshore trusts, statutory trusts, court-order trusts.
The parties to the Trusts are:
- The founder – if there is more than one person with interest in the Trust for example if the trust is set up to operate as a business you have to consider to choose the founder wisely as the founder cannot be replaced or amended in an instance whereby you intend to use the Trust as a trading instrument for the operation of a business;
- The Trustees – they play an administrative as well as controlling role in the Trust property, they can be one or more, however if no trustee is appointed for whatever reason the Master of the High Court in whose jurisdiction the trust is registered will appoint one. Trustees act in a fiduciary capacity in terms of the trust deed and therefore they need to ensure that they act in the best interest of the beneficiaries of the trust. The Act clearly indicates who is illegible to be a trustee; and
- The beneficiaries are the ones that benefit from the Trust and therefore there cannot be a valid Trust if there are no beneficiaries mentioned in the trust deed. If beneficiaries are listed as a group, it is important to ensure that they are clearly identifiable to avoid vagueness and the trust being void for lack of beneficiaries.
Tax implications
So with that said what are the tax implications for this type of instrument. The Income Tax Return for Trusts (ITR12T) is available for completion annually on efiling or at your nearest SARS branch, at the moment there is no option for the tax returns to be emailed to you. This form is obtainable from the SARS website.
The taxing income of a trust by SARS all depends on the circumstances and it can be taxed in the hands of the Donor, beneficiary or Trust these being Donation tax, transfer duty or securities transfer tax. There are various tax implications for these types of instruments, but the highest percentage thus far is 45% depended on the trust instrument as determined from time to time by SARS. A trust may also be eligible to register as a Tax Exempt Organisation on condition that certain requirements are met. At the end of the day you have to consider what would be good for your estate tax wise considering capital gains tax and where on the tax bracket you fall as SARS continuously keeps moving the tax burden on individuals, businesses and trusts.
It is imperative therefore that you have an expert advice you properly on setting up a Trust. We are able to guide you and provide you with the necessary information to assist you to draft a trust deed and register a trust to suit your needs (an end-to-end process). Give us a call for more information and guidance in setting up a Trust.
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