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The purpose of setting up a Trust is essentially the same for most of the types of trusts, that is to secure interests.

Types of Trusts in South Africa

The type and ancillary purpose of each Trust will determine what is being secured.

Trading trusts, asset protection trusts, settlement trusts, charitable trusts as well as special trusts are all aimed at ensuring the security of the purpose for that which that Trust was set up for.

In terms of deceased estates, a Trust can be set up to secure inheritance for the benefit of heirs. Whereas an inter vivos trust (living trust) is set up while the Trust founder is still alive, a

Testamentary Trust is one which is provided for in a Will to be set up after the Testator passes away. These have altering processes in setting up but their purpose is to secure inheritance for the benefit of heirs.

Taxation of Trusts in South Africa

Trusts however, have been subject to scrutiny by tax authorities as they seemed to be used to achieve favourable tax outcomes.

Applicable taxes were then revised to put in place more stringent measures. For example Income Tax for gains earned in a Trust has had to be pegged at 45% while the Capital Gains Tax would be 36%.

In some instances Trust founders have had to opt for such measures as selling assets to the Trust which attracts 0% Transfer Duty if below R1 000 000.00 (One Million Rand), lending to the Trust, donating to the Trust which relaxes the need for a Donation Tax of 20% if below R100 000 per annum, or setting up a Testamentary Trust with directives for assets to be transferred to the Trust coupled with a life policy on it to cover the attendant costs.

The above points out to the importance of estate planning so that the available options are weighed against each other, to secure inheritance for the benefit of heirs. ‘

Importance of Estate Planning

In estate planning a Trust enables the Trust founder to nominate beneficiaries as well as convey the control and ownership of assets to the Trust. The control of such Trust by the Trustees is regulated and guided by the Trust Property Control Act 57 of 1988.

Due to the fact that a Trust cannot be taxed estate duty, it follows that a part of the benefit will be retained for the benefit of the heirs.

Trusts can be used as an effective way to protect family legacies in that the assets are protected in perpetuity for the benefit of future generations if provided so in the Trust Deed.

This not only ensures financial security for those future generations, but also for the present as well as assisting in the welfare of those who cannot manage their affairs due to minor age or incapacity of some sort.

The advantages of setting up a Trust are various;

• Secures the protection of assets;
• Retains asset protection in perpetuity;
• It can reduce applicable estate duty on the assets;
• Provides an effective way to convey assets;
• The financial affairs of the Trust are only available for scrutiny by the Trustees and beneficiaries, and thus private.

On the other side of the coin there are also a few challenges with regards to Trusts. There are attendant fees and costs in setting up a Trust, control of the assets under a Trust will be the responsibility of the Trustees and not the Trust Founder even if still alive, and tax may escalate for Trust assets e.g Capital Gains Tax.

Van Deventer & Van Deventer Incorporated – Estate Planning Lawyer South Africa

It is important to seek assistance in estate planning to ensure that your beneficiaries will receive the share that you would want for them. Our comprehensive, professional and committed approach will ensure that this is achieved in a legally secure way. Contact us for more information.

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