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Administration Of Trusts

One of our specialities is Conveyancing and Property law, so we will be able to ease the process of transferring ownership of any immoveable property (real estate) and help you to understand and implement the rights and obligations that are associated therewith.

Administration Of Trusts

Our comprehensive knowledge of Trusts, will guide you in effective estate planning and in setting up a legacy for your descendants by using trusts as vehicles.

We can aid you in setting up either a:

  • Inter vivos trust (a trust between the living or a group of people) for the benefit of selected beneficiaries
  • Testamentary trust (stipulation in a will) for the benefit of the testator’s heirs
TYPES OF TRUSTS

Careful planning and drafting of documents and contracts can affect a person’s ability to create and sustain hard earned prosperity.

In South Africa, there are basically three types of trusts. These are:

  • Living trusts (in South Africa called inter vivos trusts),
  • Testamentary trust (stipulation in a will) for the benefit of the testator’s heirs
  • Testamentary trusts and
  • Bewind trusts

Testamentary Trusts are created at the winding up of a deceased estate following a specific stipulation in the deceased per-son's will that a trust must be set up. Testamentary trusts are usually created to hold assets on behalf of minor children, since minor children cannot in terms of South African law inherit anything (in the absence of a trust, assets from the deceased estate left to minor children are sold, and the money is paid to them when they reach adulthood).

Bewind Trusts are created as trading vehicles providing trustees with limited liability and certain tax advantages.

There are two types of living trusts in South Africa, namely vested trusts and discretionary trusts. In vested trusts, the benefits of the beneficiaries are set out in the trust deed, whereas in discretionary trusts the trustees have full discretion at all times about how much each beneficiary is to benefit.

PARTIES TO A TRUST Trustees

The trustees are the custodians of the assets in the Trust, but do not necessarily have an interest in the assets. In order to pro-mote the independence of the Trust, it is advisable to appoint at least one independent trustee

Beneficiaries

The beneficiaries are the individuals / entities entitled to benefit from the Trust assets or income

Donor / Founder

Person setting up the Trust

BENEFITS OF A TRUST

The two main advantages of having assets in a trust are:

Asset protection (Protection of assets from creditors)

In an ideal situation, since assets held by the trust aren't owned by the trustees or the beneficiaries, the creditors of trustees or beneficiaries can have no claim against the trust (there are ex-ceptions). A common scenario of using living trusts for asset protection is a husband and wife acting as trustees along with a third unrelated trustee. The trust is granted a loan equal to the value of their assets, then the trust buys their assets using the loan, and finally the trust pays off the loan over time.

Continuity

When any of trustees die, the trust and any assets owned by it, remain unaffected. Upon the death of a beneficiary, only the portion of the trust assets that vests in that beneficiary upon date of death would form part of the beneficiary's estate for estate duty purposes.

Donor / Founder

Person setting up the Trust

TAX CONSIDERATIONS

(FOR TAX YEARS COMMENCING 01 MARCH 2012)

In terms of South African tax law, living trusts are considered tax payers. Two types of tax apply to living trusts, namely:

  • Income tax and
  • Capital Gains Tax (CGT)

Estate duty – trusts do not pay estate duty (tax payable by a deceased estate). Trusts may be required to pay back outstanding loans to a deceased estate, in which the loan amounts are taxable with deceased estate.

The trust's income can be taxed in the hands of either the trust or the beneficiaries (a valuable tax planning tool).

HOW DOES A TRUST ACQUIRE ASSETS

Assets can be transferred into the living trust by:

  • Selling it to the trust (through a loan granted to the trust) or
  • Donating cash or other assets to it (any person can donate R100 000 per year tax free; 20% donations tax applies to further donations within the year).
DISADVANTAGES OF A TRUST Additional expenses:

A trust is deemed to be a separate legal entity. As such, the following are required annually:

  • Annual financial statements
  • Annual income tax return
  • Bi-annual provisional tax returns

Administrative requirements:
  • Keep all records (first entry to financial statements) from inception of the Trust to at least 5 years after the trust has been deregistered
  • Trustees minutes and resolutions about all transactions to be drafted and retained
  • Maintain a separate bank account for all trust cash flows
  • Maintain asset register

Relinquishment of control:
  • SARS may deem income back to the donor of the asset if there is not adequate relinquishment of control over the asset
  • A court may look through the trust if there is not adequate separation of control between the trustees and the trust assets

From the above it becomes evident that a trust is not suited for every individual.
Please contact a consultant at NS Attorneys, should you need to set up a trust.

contact us for a consultation Prospective clients are invited to contact us for more information.