Advantages of a trust
There are a number of advantages to placing assets
in a trust for estate planning purposes. These
1. Saving on estate duty. The growth on assets, such
as shares, transferred to a trust is not subject to
estate duty, because the growth belongs to the
trust. If you have made use of a loan to the trust,
the value of the assets as at the date of transfer
remains an asset of your estate because of the loan
account in your estate.
2. A trust does not die. This means that a trust is
not liable for estate duty, other taxes or costs,
such as transfer duty, executor's fees, or
conveyance fees, that would be payable in the hands
of your estate or heirs. Also, the trust does not
pay CGT as long as an asset is not sold.
3. Fixing value. The value of any assets transferred
to a trust is effectively frozen for estate duty
4. Trusts continue to pay benefits to dependants
(beneficiaries) after you die. On the other hand,
assets in your estate may not be freely available to
your dependants, because your estate is frozen
during the winding up process. This may result in
your dependants not receiving an income until after
your estate is finalised.
5. Protection of assets. A beneficiary cannot sell a
right in a trust (unlike shares in a company). If a
beneficiary becomes insolvent, the assets in the
trust continue to be protected (unlike shares in a
company). Likewise, if you, as the donor, or the
trustees become insolvent, the trust's assets remain
Tax-efficient income splitting.
Income from a trust can be structured in a number of
ways to provide tax efficiency. For example, R100
000 earned by a trust can be split between five
beneficiaries so they earn R20 000 each. Assuming
they earn no other income, they would pay no tax as
this amount is below the tax threshold.
The term "asset protection" is commonly
misunderstood. Many believe that it refers to the
techniques used to shield a debtor's assets from
creditors' claims. Because it is impossible to "bulletproof"
a debtor, asset protection involves structures and
techniques that make it more difficult and expensive
for a creditor to reach a debtor's assets. The
objective is to change the creditor's economic
analysis, making the pursuit so difficult and
expensive, the creditor will either give up or be
willing to negotiate on terms more favourable to the
Asset protection does not deal with secrecy or
hiding assets. Hiding assets is an ineffective means
of shielding them from creditors because a debtor
would usually have to disclose his assets in a
debtor exam, under penalty of perjury. A properly
structured asset protection plan allows the debtor
to reveal the nature and the structure of the plan
without sacrificing its efficacy. The general
proposition underlying asset protection is that a
creditor can reach any asset owned by a debtor, but
cannot reach assets not owned by the debtor.
Consequently, the focus of all asset protection
planning is to remove the debtor from legal
ownership of assets, while retaining the debtor's
control over and beneficial enjoyment of the assets.
Asset protection that works must be very practical.
The planning is done within a statutory framework,
but it is the practical implications of the planning
that shape the exact nature of the structures and
techniques. For example, a creditor may be able to
make a successful legal argument that a given
structure should not stand, and thus be able to
retrieve the debtor's assets. But, if making such an
argument will be sufficiently expensive and time
consuming, the creditor may never make it.
Practitioners must take into account both the
substantive legal issues and the practical aspects
of a plan. This article will focus on the more
practical aspects and results of asset protection
planning, touching on the underlying substantive law
only in passing.
Several different factors determine the nature and
the type of planning that should be used for a given
client. The three most important factors are: (i)
the identity of the creditor pursuing the client,
(ii) the nature of the assets that will be pursued
by the creditor, and (iii) the extent to which the
debtor is willing to go to protect his assets. The
identity of the creditor refers to how aggressively
the creditor will pursue the debtor's assets, and
how knowledgeable the creditor is about debt
collection laws. The more aggressive and
knowledgeable the creditor, the more obstacles we
need to erect in his path. The nature of the assets
refers to the specific assets owned by the debtor.
There is no "magic bullet" asset protection
strategy; different structures are used to protect
different types of assets.
The extent to which the debtor is willing to pursue
asset protection is important in determining the
appropriate strategy. Some debtors may be willing to
do nothing more than shuffle paper agreements,
whereas others may be willing to go through a
divorce, move assets offshore or sell their home.
Practice Pointer: All asset protection planning
implicates income, transfer and property tax issues,
and fraudulent transfer laws. While a discussion of
these issues is beyond the scope of this article, it
should be noted that many debtors approach the
fraudulent transfer analysis from a very practical
perspective, as follows. Assume the debtor is facing
a significant lawsuit risk with a large anticipated
judgment. The debtor has two asset protection
choices: (i) do nothing and stand to lose all assets
when the plaintiff becomes a creditor, or (ii)
engage in some asset protection planning. Because
the common downside of a fraudulent transfer is the
creditor's ability to set aside the transfer, a
debtor may have nothing to lose (other than the
transaction costs) by engaging in planning that may
(or may not) be deemed a fraudulent transfer. From a
creditor's perspective, a successful fraudulent
transfer challenge gives the creditor the legal
right to pursue the transferred assets. Having a
legal right to do something does not mean having the
actual ability to do so, and does not mean that the
pursuit of the transferred assets would be cost
The trust in financial planning and the
advantages of a trust
Custodianship of the assets
Custodianship of the assets of the trust prevent
assets from being squandered or wastefully
dissipated, for example, in those instances where
the beneficiary is a minor or is insolvent or is
incapacitated or is too irresponsible or
inexperienced in money matters.
Governance (management and control of trust assets)
Where may owners with divergent expectations and
requirements own the same asset the management of
the assets becomes complicated if not impossible.
Protection of assets against creditors
A discretionary trust enjoys creditor protection in
the event of the trust beneficiary's insolvency. The
assets of the trust are held by the trustees and the
creditors who are the beneficiaries cannot attack
the assets if the beneficiaries have no vested
rights to the assets.
Estate duty and related savings
Estate duty and related savings are achieved by
divesting oneself of ownership of growth assets in
favour of a trust. In so doing for as long as the
trustees keep the trust going and retain the assets
for the unvested and unspecified benefit of the
planner’s descendants no estate duty need be paid on
the death of the descendant.
Definition and Duties of Trustees
The trustee can be either a person or a legal entity
such as a company. A trust may have one or multiple
trustees. A trustee has many rights and
responsibilities; these vary from trust to trust
depending on the type of the trust. A trust
generally will not fail solely for want of a
trustee. A court may appoint a trustee, or in
Ireland the trustee may be any administrator of a
charity to which the trust is related. Trustees are
usually appointed in the document (instrument) which
creates the trust.
A trustee may be held personally liable for certain
problems which arise with the trust. For example, if
a trustee does not properly invest trust monies to
expand the trust fund, he or she may be liable for
the difference. There are two main types of
trustees, professional and non-professional.
Liability is different for the two types.
The trustees are the legal owners of the trust's
property. The trustees administer the affairs
attendant to the trust. The trust's affairs may
include investing the assets of the trust, ensuring
trust property is preserved and productive for the
beneficiaries, accounting for and reporting
periodically to the beneficiaries concerning all
transactions associated with trust property, filing
any required tax returns on behalf of the trust, and
other duties. In some cases, the trustees must make
decisions as to whether beneficiaries should receive
trust assets for their benefit. The circumstances in
which this discretionary authority is exercised by
trustees is usually provided for under the terms of
the trust instrument. The trustee's duty is to
determine in the specific instance of a beneficiary
request whether to provide any funds and in what
By default, being a trustee is an unpaid job. In
modern times trustees are often lawyers or other
professionals who cannot afford to work for free.
Therefore, often a trust document will state
specifically that trustees are entitled to
reasonable payment for their work.
Definition of a Trust
In common law legal systems, a trust is an
arrangement whereby property (including real,
tangible and intangible) is managed by one person
(or persons, or organizations) for the benefit of
another. A trust is created by a Donor, who entrusts
some or all of his or her property to people of his
choice (the trustees). The trustees hold legal title
to the trust property (or trust corpus), but they
are obliged to hold the property for the benefit of
one or more individuals or organizations (the
beneficiary, a.k.a. cestui que use or cestui que
trust), usually specified by the Donor, who hold
equitable title. The trustees owe a fiduciary duty
to the beneficiaries, who are the "beneficial"
owners of the trust property.
The trust is governed by the terms of the trust
document, which is usually written and occasionally
set out in deed form. It is also governed by local
law. The trustee is obliged to administer the trust
in accordance with both the terms of the trust
document and the governing law.
Different Types of Trust
Testamentary trust (mortis causa)
Testamentary trusts are the most common trusts in
use. They are especially suited to the protection of
interest 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
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 like a
minor turning 18 or the death of an income
Assets that form part of an estate may be moved to
this trust, with or without limited rights such as
usufruct. A testator appoints the trustees in a
The trust is formed by placing a trust clause in a
will, which serves the same purpose as a trust deed.
During the estate settlement period of the deceased
estate, the appointed trustees apply for a letter of
authorisation at the same office of the Master of
the High Court as where the estate is registered.
A testamentary trust may further be both a
discretionary or vested trust.
Payment of income and/or capital is subject to the
discretion of the trustees and all non-allocated
income is taxable in the hands of the trust. This
type of trust may thus be utilised to save on income
tax by splitting incomes. Capital beneficiaries may
only be determined at a later stage.
The income and capital beneficiaries are already
determined and described. The income is taxable in
the hands of the income beneficiary, which could
also be the capital beneficiary. The capital
beneficiary thus gets immediate property rights,
subject to the terms of the will or trust act.
Living trust (Inter Vivos)
Living trusts are ideal for keeping growth assets
out of your estate and are thus a superb medium to
limit estate duty and to protect assets from
generation to generation. A living or inter vivos
trust comes into being during the lifetime of the
Donor or founder with the signing and registration
of a trust.
A living trust is formed as an arrangement between
the founder/Donor and the trustees. The
founder/Donor is the person that takes the
initiative to create a trust.
The interested parties in a living trust are the
founder/Donor, the trustees, the persons or company
appointed to take control over the assets and take
responsibility for the administration and management
thereof; and the beneficiaries or person who, in
terms of the trust act, are entitled to the income
and/or capital of the trust.
After signature of the trust deed, the trust is
registered with the Master of the Supreme Court in
whose jurisdiction most of the assets are situated
or where the administration is to take place.
A living trust can take several forms:
A trust that 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, or assets can be donated, but with donation
tax implications. The trust may obtain other assets
by way of purchasing or an inheritance.
Duties of a Trustee
The most important duties and functions of a
Trustee are the following:
At all times to act in the best interest of the the
To have regular Trust meetings
To keep records of all meetings and the Trust
To keep Financial records
To submit returns to the receiver of revenue
What is a trust is and why the benefits cannot be
Briefly touching on a few perceived disadvantages.
Firstly many people are under the impression that
one needs to be wealthy to set up a trust, nothing
could be further from the truth, in fact the less
you have the more you need a trust, the wealthy will
do just fine if they face a financial crisis, us
lesser mortals will lose everything if we do not
A further common myth that pervades, being that the
Government is looking at trusts. Trusts were
previously not defined in the Income Tax Act as
taxpayers, this clearly gave rise to serious abuse
of trusts for tax purposes. The Government has since
1991 made various amendments to the act to combat
these practises. Since 2002 there have been very few
amendments, so we can safely assume that there is a
degree of stability in that area. Further, the
manner in which we will advise that you use your
trusts, and the way they hold assets and trade, are
securely within in the ambit of all existing laws
and specifically the Income Tax Act.
There is the big transfer duty debate, transfer duty
is higher in a trust as the transfer duty is levied
at a flat rate of 10 %, however this is not an
additional fee when buying in a new development as
it already includes 14% VAT. The cost of the duty is
further skewed, when one acquires property at the
lower end of the market, as there is a sliding scale
that applies to natural persons. The initial extra
cost, is well worth paying as will become evident
when we address asset protection and death costs and
Control: legally and technically, once a trust is
formed, the assets that are held in trust are
separate from the individual. The control of the
assets are now no longer in the hands of the
individual, however the trustees are still in
control as they are still trustees of the trust and
privy to all decisions,
Set up costs: there are clearly going to be legal
fees incurred in the establishment of your trusts,
be advised that you should utilise the services of
an expert as we often come across poorly drawn
deeds, or deeds that do not give you all of the
benefits we discuss here.
Administration: a trust needs to be administered,
the Trust Property Control Act, requires that a
simple set of financials be drawn, please take note
that it is not mandatory that the financials be
audited, as this will result in unnecessary further
costs, so simple financials will suffice which are
The high tax rate opinion: trusts are the most
highly taxed entities or person in South Africa,
they are taxed a rate of 40%, however there are
mechanisms to minimise tax payable through the use
of a trust, paradoxically, through the conduit
principle, tax efficiencies can be achieved and the
Trust is actually an entity which will make
provision for tax savings, which you can not
personally or through a Company achieve. So whether
you have an income tax or capital gain, in the Trust
the taxation can be minimized.
The concept of a trust and the benefits of a
A trust is a separate entity from an individual,
totally distinct as one person from another, however
not unlike a CC or PTY LTD but quite unique, in that
it is not a creature of statute, but it is the
product of a contractual arrangement. The Income tax
act, deeds registry act, transfer duty act, Value
added Tax Act and the Insolvency act afford a trust
We can contrast a Trust with a CC or a Pty Ltd which
are entities created by completing and registering
certain statutory forms with the Registrar of
Companies which then registers the CC or Pty Ltd and
it comes into being. A Trust is created by contract
which is a Legal document, commonly referred to as a
Trust Deed. The following points are important to
remember, a Trust while not legally being referred
to as a person is separate from you, a trust is not
owned by any one, and a trust never dies or
terminates unless it is terminated by agreement or
it is sequestrated if it is unable to pay its debts.
The latter qualities make a Trust the only entity
which will afford total asset protection and estate
duty savings along with a myriad of other benefits,
which we will discuss shortly.
There are various types of trusts, namely;
Vesting or Bewind Trusts,
Special Trusts and
Discretionary Trusts, we will only be discussing
Discretionary trusts as, the other forms of trust
are of no benefit to us as they do not afford the
necessary asset protection and estate duty savings
and Capital tax saving benefits that discretionary
trusts are able to offer.
A trust is such a wonderful tool in that it is not
owned by anyone, it does not die and it is totally
separate from the persons who have formed it and or
control and benefit from it. These qualities have no
match as you will soon discover, and which we will
Formation of a trust
As mentioned earlier a trust if formed by contract
it is a contract entered into by a Founder who
places certain assets under the administration of
the Trustees for the benefit of beneficiaries. The
parties are the Founder and the Trustees, in certain
instances Beneficiaries are also party to the
As individuals we face a number of potential
situations which can result in us losing all of our
hard earned assets, cash, investments and
We have listed a number of instances which are
common which can result in this transpiring.
An existing business, or a new business which ends
up in trouble often results in you having to make
good to creditors, for unpaid rental agreements,
suppliers, staff, the Receiver of revenue, loans,
overdrafts and the like
If you have signed a surety for any person or your
own business you are exposed to that claim if it is
Divorce is often an emotional time, and very often
irrational decisions are made which could result in
assets being sold or being forced to part with
assets which you did not intend to.
You could face claims by creditors of your spouse if
you are married in community of property.
Generally you have creditors which could lay claim
to your assets if you cannot pay your debts.
In the event that you are retrenched, for any
variety of reasons you could be in a position where
you are financially vulnerable, as you might not be
able to meet your obligations, leaving your assets
at risk to creditors.
The individual can face a claim for damages; this
might cause the assets to be attached.
The above paints a pretty bleak picture; the above
can be avoided and contained through the
establishment of a Trust, or a combination of
trusts. The trust is the only legal vehicle which
can offer an individual total asset protection, this
is achieved by virtue of the fact that a trust is
not owned by any person, this gives it a legal
personality of it’s own quite distinct from the
Once the assets have been moved into the trust, they
no longer belong to the individual. There are
certain laws that need to be borne in mind before
the assets are safe.
There is a window period prescribed in the
Insolvency Act, this affords creditors protection
from delinquent creditors, we certainly are not in
that category, we do however need to ensure that we
have safely moved our assets into a trust, so that
these time periods have elapsed and the assets that
have been moved are not liable to attachment under
the relevant sections of the Act, it prescribes that
if a creditor has a claim against an individual who
is solvent, and who has moved/sold/ transferred or
donated his assets, the creditor may if the assets
were moved within a 6 month period, reverse such
transactions and attach the assets and sell them.
The situation is even worse if the individual is
insolvent at the time of the shifting of assets; the
period is then extended to 24 months before the
assets are safe form a creditor reversing such
Benefits on Death
No Capital Gains - Capital gains tax is a form of
tax levied on natural and legal persons, it was
introduced on the first of October 2001. The tax
normally only comes into effect when an asset is
sold that has appreciated in value, there are other
instances where the tax will be deemed to have been
triggered, one such event is your death, you are
deemed to have sold all your assets to your deceased
estate. Therefore all the assets that you own at the
time of your death, including properties, will
attract CGT at a rate of 10% (we will for simplicity
sake ignore roll overs and exemptions for now) this
is further exacerbated by the fact that the tax is
due even though no money has changed hands or been
received, this will inevitably leave your estate in
a illiquid position. This can be avoided by merely
placing all the assets in trust. The trust does not
die and therefore the CGT will not be triggered
saving the investor huge amount of CGT, 10% of the
value of the growth of any assets in your estate at
the time of your death.
No estate duty - On the death of an individual the
receiver of revenue lurks ever so near to get a
further portion of the investor’s estate in the form
of estate duties. Any person who dies or who owns
property in this country will be subject to Estate
duties, please note that this covers all your world
wide assets. This also affects any non-resident or
citizen who has property in this country. The scope
of property and assets is very widely defined and
covers numerous classes of property and assets and
all forms of rights to property, policies,
annuities, investments and business. The tax is
levied at a rate of 20 % of the value of any assets
you have in excess of 1.5 million, after certain
deductions have been made. This is a massive amount
of money to have to part with because of your death;
the real sting in the tail is that this is a tax on
after tax money and assets, and in certain cases
fictional assets such as goodwill, which might be
worthless after your death.
It is vital / critical to establish the correct
structure in order to ensure that you pay a minimal
amount if not Zero death duty. An average estate
will pay approx 30% of any net values of such
estate. It is important to note that certain assets
which are not in your name could be deemed to be
your assets i.e. Usufruct rights, interests in
property, assurance policies, the latter along with
all assets, business (huge Value) properties,
movable assets, investments, cash unit trusts,
shares, time share etc. all of these assets are
valued and will form part of the estate of the
individual, after deductions of debts and certain
exemptions and estate in excess of 1.5 million is
taxed at 20%.
The solution to this frightening proposition is
simple, by establishing the Family Trust and
ensuring that all the assets are held by trust, the
trust never dies, our law allows for the Trust to
continue in perpetuity. On the death of the
individual they should pay zero Estate duty.
No executors fees - The investors death is again a
hunting ground for further costs, not only is the
estate subjected to CGT, and estate duties but also
to executor’s fees. An executor is the person or
company or firm that winds up the estate of the
individual, for this task they are entitled to a
maximum fee of 3.5 % of the gross value of the
estate plus VAT in certain circumstances, please
note the GROSS value of the estate, (excluding
liabilities etc This is one of the most understated
costs, as the impact of the costs are not adequately
explained to people. As your objective is to acquire
as many properties as the bank will finance for you,
your estate is going to be quite substantial which
means that that you are in for some serious
executor’s fees. Again the solution to this is the
formation of a trust, as the individual will not own
any assets, and all property will be held by a trust
or combination of trusts, the estate should be zero
or inconsequential, thereby eliminating the
executor’s fees payable.
Protection of minors - Our law does not allow for
minors to directly inherit, therefore an individual
who wants to leave all or any assets to minor
persons will not be able to do so, or persons not
adequately addressing the issue in their wills or
via testamentary trusts will end up with a situation
where all the assets will be liquidated into cash.
This is the position as the funds or the cash needs
to be held by the guardian’s fund. The fund can only
hold cash as they do not have the ability or
resources to administer property, this great fund is
controlled by the Government, and pays interest of
+- 3%.In the event monies are not claimed, they are
forfeited to the state, wonderful thought!
In the interim the minors will have limited or no
access to the fund for their needs, education,
health, well being housing. Your dream of passing on
your hard earned work in establishing your property
portfolio to children is impossible as Guardians
Fund can only hold cash, and all your efforts will
be lost. The solution is to have all your assets and
your properties in a trust, as the trust survives
your death; any beneficiary may benefit and access
assets immediately. Also bear in mind that property
administered by your appointed Trustees will accrue
at a much better rate than the interest earned in
the Guardians Fund, on their majority they will have
access to a great property portfolio.
Saving of costs on death, in establishing a trust a
host of costs can be saved as the entity continues
Donations tax: This is another one of SARS anti
avoidance mechanisms; you are not even allowed to
give your assets away, other than to your spouse,
and certain tax exempt institutions. You are limited
to donations of R 100 k per annum, this places you
in an invidious position, if you wish to give assets
or cash to children or parents or family or
dependents, if you do you will face a taxation of
20% on any amount over R100 000, this can be
resolved by making these persons beneficiaries of
your trust, a trust is exempt form donations made in
pursuance of the trust.
We re-iterate that there is no necessity for a trust
to terminate, a trust does not die and can therefore
continue in perpetuity. This allows for the
continuation of the assets, property portfolio which
allows for future generations to benefit from your
labour, no costs, no transfer, no cancellation of
bonds, there is no Estate Duty, CGT or executors.
On the death of any individual, their estate is
frozen, this transpires in order for the Executor to
wind up the estate, i.e. collect assets, pay debts,
taxes, and only after that to make our bequests then
distribute benefits to the beneficiaries and Heirs.
All the while Spouse and dependants of the deceased
have no access to any monies or assets; complex
estates could take numerous years between 2-5 years
to wind up.
As a Trust holds the assets and cash, they are
immediately accessible versus the situation where
individual dies and takes 2-5 years to wind up,
causing hardship to spouse and dependants.
Ensure your deed is correctly structured as in the
event that it is mandatory to terminate at a point
the above benefits could be lost to descendants and
THE SARS RED HERRING ON PRIMARY RES EXEMPTION
SARS allows for a R1.5 Million exemption on an
individual’s primary residence. Many persons are
persuaded to acquire their home into their or their
spouse’s names to benefit from the exemption. A
practical illustration will demonstrate that there
is only a miniscule benefit to be had. If Individual
is taxed at max rate of 40% CGT rate= 10% of 1BAR=
R100K, 1BAR today is less than 1 BAR 2001. (Rand,
inflation) what is it worth in 10 years time, the
benefit is actually only R100k, however, contrast
this with the fact that if you face Creditors or
liabilities you may lose the home. Are you ever
going to sell your primary residence? If not, CGT is
not applicable. In event of your death and the home
is in your name you will pay 20% Estate Duty CGT on
any capital growth in excess of 1BAR (current growth
30% that is mini scale). Executors fees, costs to
transfer property, versus placing the home in a
trust, which affords asset protection, estate duty
saving, no CGT, no Executors fee, continuity if sell
use conduit max to personal rate only forfeit R100k.
We strongly recommend that one always takes the long
term view into account. If long term then it must be
held in a Trust as the reality is, you will die; you
will probably have an issue with Creditors, with a
possibility of selling prior to the above trust
Situation in terms of liquidating the estate has no
cash to pay the tax. This is even more important for
us as property investors as we have accessed a large
portion of this growth during our lifetime, this
results in liquidations of properties to meet CGT
defeating objectives of passive income and growth to
Heirs. Solution: having a property portfolio in a
Trust, a trust does not die or terminate therefore
no CGT costs.
In conclusion we trust that we have made it patently
clear that it is imperative that property must be
bought in a Trust in order to achieve the benefits
that we have listed above.
How do I donate money to a Trust?
In terms of the income tax act you are allowed to
make a donation to a individual or Trust to a
maximum of R100 000 per year without attracting
donations tax (currently 20% of donation).
Remember that the donation must be reduced to
writing. This document called a deed of donation
must be signed by the donator as well as the
Trustees who accepts the donation on behalf of the
Trust. Remember to keep copies as proof.
How to Register a Trust
There are two types of trusts, namely the inter-vivos
trust and the testamentary trust. The inter-vivos
trust is created between living persons, whereas the
testamentary trust is derived from the valid will of
a deceased person.
Steps to follow to register an inter-vivos trust
Register the inter-vivos trust at the office of the
Master in whose area of jurisdiction the greatest
portion of the trust assets is situated. If more
than one Master has jurisdiction over the trust
assets, final jurisdiction will rest with the Master
of the office where the trust was first registered.
Submit the following documents to the Master:
• A completed Acceptance of Trusteeship application
form for each trustee (to be completed by the
• A completed Bond of Security if required by the
Master for each trustee
• The original trust deed or a copy thereof,
certified by a Notary
• R100 – in the form of either uncancelled revenue
stamps affixed to the trust document or a stamp
impressed with a franking machine approved by the
Commissioner for Inland Revenue
• An undertaking by an auditor, if applicable
The Powers of the Trustees of a Trust
The Trustees shall have the power to deal with the
Trust property, capital and/or income and or capital
profits or gains of the Trust for the benefit and
purposes of the Trust, in their discretion, for
which purposes they are granted the widest powers
and authority, including and without prejudice to
the generality of the a foregoing, the following
specific powers and authorities:
to open and operate any banking account or facility
and/or building society account or facility, apply
for any credit or debit cards and to draw and issue
cheques and to receive cheques, deposits, promissory
notes and/or bills of exchange, and attend to any of
the latter by electronic, telephonic or internet
to acquire, dispose of, invest in, let or hire,
exchange, and/or barter movable, immovable or
incorporeal property and to sign and execute all
requisite documents and to do all things necessary
for the purposes of effecting and registering, if
needs be, the transfer according to law of any such
property. In exercising any powers of sale, whether
conferred in this sub-clause or otherwise, they
shall be entitled to cause such sale to be effected
by public auction or by private treaty and in such
manner and on such terms and conditions as they in
their sole and absolute discretion may deem fit and
in exercising any powers of lease they shall be
entitled to cause any property to be let at such
rental, for such period and on such terms and
conditions as they, in their sole and absolute
discretion may deem fit;
To invest in shares, stocks, debentures, debenture
stock, unit trusts, warrants, options, bonds, gilts,
securities, promissory notes, bills of exchange and
other negotiable instruments. In the event of a
company or a unit trust scheme prohibiting, in terms
of its articles or regulations, the transfer of
shares or units into the name of the Trust as such,
the shares or units shall be registered in their
personal names or in the names of their
representatives and shall be held as nominees on
behalf of the Trust;
to retain and allow the Trust property or any part
or parts thereof to remain in the present state of
investment thereof for so long as they think fit;
to lend money on such terms and at such interest,
and to such persons (including beneficiaries and any
Trustee of the Trust, or any director or shareholder
of any company in which the Trust, any Trustee or
beneficiary is interested, directly or indirectly or
to companies in which the Trustees in their
representative capacities or any beneficiary, holds
shares, directly or indirectly) as the Trustees may
determine, and with or without security as the
Trustees may determine;
to dispose of and otherwise vary any Trust
in their sole and absolute discretion, to borrow
money for the purposes of discharging any liability
of the Trust and/or for the purpose of paying income
tax and/or for the purpose of making payment of
capital and/or income, and or capital profits or
gains to any beneficiary and/or for the purpose of
making a loan to any beneficiary and/or for the
purpose of making an investment and/or for the
purposes of preserving any asset or investment of
the Trust and/or for the purposes of conducting any
type of business or in order to provide any type of
services on behalf of the Trust and/or any other
purpose deemed necessary or desirable by the
Trustees, at such time or times, at such rate of
interest or other consideration for any such loan
and upon such terms and conditions as they may deem
desirable. Such borrowings may be made from any
suitable person or persons and, should they consider
it advisable to do so, the Trustees may secure the
payment of any such loan by pledging or mortgaging
the Trust property or any part thereof or by any
other security device. Any such loan or loans may be
extended, renewed or repaid from time to time as the
Trustees may deem to be in the best interest of the
obtain and utilise in the name of the Trust,
membership in and any credit facilities from any
agricultural or other society and for this purpose
to encumber the Trust property or any part thereof
by way of pledge, hypothec or mortgage as security;
the Trustees shall be entitled to make donations for
charitable, ecclesiastical, educational or other
like purposes either from the income, capital
profits or gains or the capital of the Trust;
to mortgage, pledge, hypothecate or otherwise
encumber any property, asset, income or capital, or
capital profits or gains forming part of the Trust
property and to execute any act or deed relating to
alienation, partition, exchange, transfer, mortgage,
hypothecation or otherwise, in any deeds registry,
mining titles office or other public office dealing
with servitudes, usufructs, limited interests or
otherwise; and to make any applications, grant
consents, and agree to any amendments, variations,
cancellations, cessions, releases, reductions,
substitutions or otherwise generally relating to any
deed, bond, or document for any purpose and
generally to do or cause to be done any act
whatsoever in any such office;
to appear before the Registrar of Deeds, Registrar
of Claims, conveyancer or other proper officer and
to execute any Mortgage Bond or Deed of
Hypothecation as security for loans of money or as
security for any other indebtedness or obligation
contracted on the trust's behalf
To appear before any Notary Public and to execute
any Notarial Deed;
collect rent, cancel leases, and to evict a lessee
from property belonging to the Trust;
to improve, alter, repair and maintain any movable
and immovable property of the Trust and further to
improve and develop immovable property by erecting
buildings thereon or otherwise, to expend the
capital or income, profits or capital profits of the
Trust for the preservation, maintenance and upkeep
of such property or buildings, to demolish such
buildings or effect such improvements thereto as
they may consider fit;
to sue for, recover and receive all debts or sums of
money, goods, effects and things, which are due,
owing, payable or belong to the Trust; institute any
action in any forum to enforce any benefits or
rights on behalf of the trust;
to allow time for the payment of debts due to them
and grant credit in respect of the whole or any part
of the purchase price arising on the sale of any
assets constituting portion of the Trust property,
in either case with or without security and with or
without interest, as they may think fit;
to institute or defend, oppose, compromise or submit
to arbitration all accounts, debts, claims, demands,
disputes, legal proceedings and matters which may
subsist or arise between the Trust and any person;
to attend all meetings of creditors of any person
indebted to the Trust whether in sequestration,
liquidation, judicial management or otherwise, and
to vote for the election of a Trustee and/or
liquidator and/or judicial manager and to vote on
all questions submitted to any such meetings of
creditors and generally to exercise all rights of or
afforded to a creditor; to exercise the voting power
attached to any share, stock, stock debenture,
interest, unit or any company in which the share,
stock, stock debenture, security, interest or unit
is held, in such manner as they may deem fit, and to
take such steps or enter into such agreements with
other persons as they may deem fit, for the purposes
of amalgamation, merger of or compromise in any
company in which the shares, stock, debenture,
interest, or unit are held;
to subscribe to the memorandum and articles of
association of and apply for shares in any company
and to apply for the registration of any company;
to determine whether any surplus on the realisation
of any asset or the receipt of any dividends,
distribution or bonus or capitalisation shares by
the Trust be regarded as income or capital of the
to engage the services of professional
practitioners, agents, independent contractors and
tradesmen for the performance of work and rendering
of services necessary or incidental to the affairs
or property of the Trust;
to enter into any partnership, joint venture,
conduct of business or other association with any
other person, firm, company or trust for the doing
or performance of any transaction or series of
transactions within the powers of the Trustees in
terms hereof, and/or to acquire and/or hold any
assets in co-ownership or partnership with any
to determine whether any sums disbursed are on
account of capital or income or capital profits or
gains or partly on account of one and partly on
account of the others and in what proportions, and
the decision of the Trustees, whether made in
writing or implied from their acts shall be
conclusive and binding upon all the beneficiaries;
to effect an assurance policy on the life of the
Founder, a Trustee and/or a beneficiary, to effect a
short term insurance policy, or to take cession of
such policy and to pay the premiums for such policy
out of the income, capital profits or gains or
capital of the Trust. To continue any such policy
and/or to surrender, redeem, dispose of, encumber
and borrow against any such policy, with the right
generally to deal with any such policy as they in
their discretion deem fit. If during the currency of
the Trust a person so assured should die while the
assurance policy on his life is still in operation,
the proceeds of such policy shall form part of the
to contract on behalf of the Trust and to ratify,
adopt or reject contracts made on behalf or for the
benefit of the Trust, either before or after its
creation to employ and pay out of the Trust any
other person or other persons to do any act or acts,
although the Trustees or any of them could have done
any such act or acts;
to conduct or carry on any business or to provide
any type of services on behalf of and for the
benefit of the Trust, and to employ the Trust
property and income or any capital profit or gain,
in the conduct of any such business;
to hold the whole or any part of the Trust property
in the name of the Trust, or in their names, or in
the names of any other persons nominated by them for
In the event of the Trustees obtaining the necessary
authority, to incorporate any company, or establish
a Trust in any place in the world at the expense of
the Trust with limited or unlimited liability for
the purpose of Infer alia, acquiring the whole or
any part of the assets of the Trust. The
consideration on the sale of the assets of the
Trust, or any part thereof, to any company
incorporated pursuant to this sub-clause, may
consist of wholly or partly paid debentures or
debenture stock or other securities of the company,
and may be credited as fully paid and may be
allotted to or otherwise vested in the Trustees and
be capital monies in the hands of the Trustees;
in the event of the Trustees obtaining the necessary
authority, to hold the Trust property or any part
thereof in or to transfer the administration and
management of the Trust property or any part thereof
to any country in the world;
in the Trustees sole discretion to allow any
beneficiary, or their parents and/or their guardians
and/or the Founder and/or his/her spouse, free of
charge, to occupy or use any immovable or movable
property forming part of the Trust;
to pay out of the income, capital profits or, at
their discretion, out of the capital or the Trust
property all rates, taxes, duties and other
impositions lawfully levied or imposed on the Trust
property or income or capital profits or gains of
the Trust or any part thereof or on any beneficiary
hereunder on account of his interest in the Trust
hereby created or which may be imposed on the
Trustees in respect of matters arising out of the
to pay out of the income, capital profits or out of
the Trust property all and/or any expenses
(including legal fees) incurred in the
administration of the Trust or any expenditure
incurred pertaining to any activity undertaken by
the Trust, or on behalf of any Trustee or
to accept and acquire for the purpose of the Trust
any gifts, bequests, grants, donations or
inheritance from any person or estate, or payments
from any person, firm, company or association that
may be given, bequeathed or paid to them as an
addition or with the intention to add to the funds
hereby donated to them. Any additions so accepted
and acquired shall be deemed to form part of the
Trust property to be administered and dealt with
subject to the terms of this deed;
To be entitled to treat as income, or capital
profits or gains any periodic receipts although
received from wasting assets, and shall not be
required to make provision for the amortisation of
the same. They shall also be entitled to determine
in such manner as they may consider fit what shall
be treated as income and what shall be treated as
capital profits or gains in respect of any
liquidation, dividend or return of capital in the
case of companies whose shares are being held as
portion of the Trust property by the Trustees; and
generally to decide any question which may arise as
to how much constitutes capital profits or gains and
how much constitutes income by apportioning in such
manner as they may consider fit;
Do all or any of the above things and to exercise
all or any of the above rights and powers in the
Republic of South Africa or in any other part of the
Protection of Assets.
A beneficiary cannot sell a right in a trust (unlike
shares in a company). If a beneficiary becomes
insolvent, the assets in the trust continue to be
protected (unlike shares in a company). Likewise, if
you, as the donor, or the trustees become insolvent,
the trust's assets remain protected
Role and Appointment of Trustees of a Trust
The Control of Trust Assets Act contains certain
provisions to which all trustees must comply.
Non-compliance to these provisions may lead to
Although it is generally accepted that there will be
at least three trustees in inter vivos trusts, two
are perfectly sufficient. A trust company may well
act as the only trustee.
Because the management of a trust is a big
responsibility, it is important that the right
persons/institutions act as trustees. Expertise and
experience are of the utmost importance since the
management of a trust usually spans many years.
Duties and responsibilities
The law places a responsibility on trustees to
always act objectively and in the interest of
beneficiaries. The law dictates the following
regulations, which trustees must heed:
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 dealing
with the trust assets.
Good faith - the trustees must always act in good
Compliance with the trust deed - trustees are
legally bound and obligated to execute the
stipulations of the trust deed or the will (in which
the aims as well as the powers and responsibilities
of the trustees are explained).
A testamentary trust (sometimes referred to as a
will trust) is a trust which arises upon the death
of the testator, usually under his or her will.
Testamentary trusts are distinguished from inter
vivos trusts, which are created during the Donor's
For a testamentary trust, as the Donor is deceased,
he will generally not have any influence over the
trustee's exercise of discretion, although in some
jurisdictions it is common for the testator to leave
a letter of wishes for the trustees.
In practical terms, testamentary trusts tend to be
driven more by the needs of the beneficiaries
(particularly infant beneficiaries) than the by tax
considerations which tend to dominate considerations
in inter vivos trusts.
The administration of a trust
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 investment principles.
The administration also entails that trustees handle
all transactions, and requires of them the
investment of assets without speculating, and to
make regular maintenance payments to beneficiaries.
In terms of the law, trustees are expected to report
Fellow trustees, beneficiaries and guardians of
The South African Revenue Service
The Master of the High Court (if so requested)
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.
The three main uses of a trust are:
To freeze the value of an estate which has a high
asset value. In other words, if you transfer an
asset to a trust, the asset's value does not grow in
your hands which would increase the amount of estate
duty that will have to be paid on your death.
To hold and protect assets for
To protect assets in the event of insolvency.
Creditors cannot claim money held in a trust. This
assumes you did not deliberately put the assets in
the trust to defraud creditors. Remember, however,
that if you set up a loan account for the trust,
that loan account can be attached by creditors.
Trust and your Dependants
Trusts continue to pay benefits to dependants
(beneficiaries) after you die. On the other hand,
assets in your estate may not be freely available to
your dependants, because your estate is frozen
during the winding up process. This may result in
your dependants not receiving an income until after
your estate is finalised.
A Trust is a separate legal entity which exists
apart from the individuals who control it and
benefit from it. It has its own bank account and
submits its own tax returns and may draw up its own
annual financial statements.
Advantages of a trust
As it is a separate legal entity it cannot be
attacked by your creditors unless it has signed
It gives you great savings on estate duty on your
assets when you die. Currently estate duty of 20% is
payable on every rand above R3.5 million of assets
an individual owns.
It allows the assets to continue operating when you
die as most trusts have a clause nominating a
beneficiary or other person to become a trustee on
your death. As an individual your estate would be
frozen on death.
It is an attractive and neat vehicle for you to
house and build up all your assets in.
If it is a discretionary trust, the income received
and distributions made may go to any beneficiary at
the discretion of the trustee.
Persons involved in a trust
Donor – this is the person who donates a nominal sum
of as little as a R100-00 so as to get the trust
formed. The Donor should be a close relation such as
a parent or sibling.
Trustees – these are the persons who control the
assets of the trust and make decisions as to which
assets to purchase or to dispose of. The trustees
need to be independent and 3 trustees are normally
considered a good number. The trustees are normally
yourself, your spouse or a close friend and a third
independent person being your attorney, accountant,
business advisor or wise mentor.
Beneficiaries – these are the persons who benefit
from the trust and are normally your children and
could also be yourself and your spouse or any other
person you may wish to nominate.
Administering your Trust
If a new asset is purchased, it should be paid out
of the trust bank account, it is then entered into
the trust’s books of account.
You can sell assets you currently own to the trust
whereby you create a loan account and the trust owes
you money. This does require a detailed explanation.
What exactly is a trust?
In general, a "trust" is a legal entity that is able
to own property and other assets. It is one of the
oldest relationships known in the law. The
Babylonians used trusts, and every society since
then has used some sort of trust relationship.
Essentially, it is established by a legal agreement
defining how assets are going to be managed and
Who are the role-players in a Trust?
One person (the "founder or creator or grantor") in
this case you, gives up property or "grants"
property to another person (the "trustee"), who is
"trusted" by the grantor. The trustee is trusted to
take care of the property and use the property, not
for himself, but for the "benefit" of a third
person/s (the beneficiary/ies). The terms "trustee"
and "beneficiary" are standard in every trust.
However, the term "grantor" is often times replaced
by "Donor", "founder", "creator", or "trustor".
The parties to a trust therefore include:
- The founder - the person who creates the trust by
bequeathing or donating property or assets to it.
- The trustees - the people who make decisions
regarding the management of the assets or
investments in the trust.
- The beneficiaries - the people who receive the
income earned by the property or assets in the trust
and who may be entitled to own the property or
assets at a later stage.
- The Master of the Court - the administrator of
estates who ensures that the trust adheres to the
relevant legislation and oversees the governance of
How is the Master of the High Court involved?
The Master's role is firstly of an administrative
nature and secondly boils down to substantive
supervision. All trusts are registered by the Mater
of the High Court and Trustees are appointed by the
Master to act in such capacity.
What are the legal requirements for a trust to be
- The founder (you) must have the intention to
create the trust.
- The agreement or deed must be legally binding.
- Assets being placed under control of the trust
must be identifiable.
- The objective of the trust needs to be clearly
stated and must be lawful.
- Beneficiaries must be nominated.
Who can be Trustees of my Trust?
The Trustees must be someone you can trust. A
trustee is someone that will act in good faith
towards the beneficiaries with care and diligence.
Any person who is qualified to act as a trustee may
be appointed as such; therefore family members,
friends etc may all be Trustees. The founder of the
trust can also be appointed a trustee of the Trust
as well as any beneficiaries of the Trust.
Who can be a beneficiary of a trust?
Any person can be a beneficiary. A person is defined
in Law as a human being, others that can be
beneficiaries are a duly registered trust, juristic
persons, associations, foundations, funds,
companies, partnerships, the state or any organ of
the state. There is no limit to the number of
beneficiaries to the trust.
Can I be a beneficiary and Trustee at the same
It is good practice to have at least one trustee who
is independent and not a beneficiary of the trust in
order to avoid the trust being regarded as a sham
and not recognised for the purposes for which you
set it up (such as to protect your assets or save
estate duty). If you are the sole trustee, you have
control of the trust and, as such, you should not
also be a beneficiary of the trust. In almost 95
percent of the trusts set up in South Africa, there
is a blurring between control of the trust's assets
and enjoyment of them.
What rights do beneficiaries have over my trust
A trust is a contact to the benefit of a third
party; the beneficiaries therefore only obtain
rights when and if they accept the benefits of the
contract. It is advisable that the beneficiaries
should be discretionary beneficiaries to the income
and capital of the trust. In such a case the
beneficiaries have no rights to claim benefits,
except if and when the trustees have exercised their
Can the beneficiaries of the trust be amended?
The ability of the trustees to amend the deed is
governed by the terms of the trust deed. In the
absence of anything to the contrary the
beneficiaries can be changed by a written agreement
of the trustees in the form of a resolution lodged
with the Master of the High Court.
What is a Trust Deed?
The trust deed is the document in terms of which the
trust is established. It sets out the rules for what
can and cannot be done in a trust, so you need to be
careful about what you put in the deed.
What are the benefits of a trust?
- The most important benefit is the protection of
assets, whether personal or business. As seen in
Roger's Story a trust protects both individuals and
business owners from creditors should they ever face
sequestration or liquidation.
- Creditors will not be able to attach your assets.
This can be extremely helpful if you are an
entrepreneur as you will be able to freely conduct
business without risking your family's future or
- Trusts can also be used to hold shares in a
business, to open a savings or cheque account.
- Trusts allow the continuity of your assets.
- Trusts also keep the assets secure from
- You won't lose everything in a divorce.
Are there any disadvantages for a trust?
Disadvantages may occur when a trust is not
structured properly. For a trust to be effective the
founder (you) has to give up control over the trust
assets to the trustees.
How does one create a Trust?
A living Trust, also called an Inter Vivos Trust is
created by means of agreement (a contract) between
the founder and the Trustees, during the lifetime of
the founder. The agreement is called the Trust Deed
it is signed in accordance with the Law of Contracts
and registered at the Master of the High Court where
the initial Trust assets are based. A Testamentary
Trust, also called a Trust Mortis Causa is created
on the death of the Testator and set out in the
testator's Last Will or Testament.
What powers do Trustees have?
A Trustee derives his power specifically from the
Trust Deed. The trust deeds give a trustee extensive
powers to preserve and protect trust assets.
What duties will do Trustees have?
The duties of a Trustee are set out in The Trust
Property Control Act, 57 of 1988:
- Act in accordance with the Trust Deed Act with
care, diligence and skill.
- Keep proper record of trust assets and be
- Administer and protect Trust Assets.
- Act in good faith towards Trust assets and
What happens when a trustee die?
Most deeds cater for replacement or substitute
What happens to my assets when I transfer it to
When the assets are transferred to the Trust,
ownership thereof passes in its entirety to the
trust and the trustees become the custodians
Should creditors claim against you, then the assets
no longer belong to you and therefore they cannot be
attached. On your death the assets will not be
included as part of your estate and no estate duty,
CGT or executor's fees may be levied on it.
Do I need to have a bank account for my trust?
Yes, the trustee must open a bank account for the
Trust. The bank account will be in the name of the
Should I close my personal bank account and
operate only through my Trust bank account?
Never! Always accept payment of your salary and
earnings in your personal account. You can always
transfer funds from there to your Trust account.
How do I move my assets to a Trust?
One cannot declare any assets owned by the trust as
your own. Once you sell, donate or transfer an asset
to a trust, it becomes the trust's asset and is no
longer owned by you in person. You can sell your
assets to a trust by way of a loan, but you must
take care when you draw up your will not to write
off the loan by bequeathing the loan amount to the
trust. The writing off of the debt will incur
capital gains tax for the trust.
A better option is to use the donations tax
exemption of R100 000 each year to 'donate' money to
the trust annually. The trust can then use this
money to repay the loan to you.
For example, if you lend the trust R300 000, you can
donate R100 000 each year tax-free to the trust. The
trust can then use this money to repay the loan over
If you sell your assets to a trust, there must be
either a sale agreement or a loan agreement. In the
absence of an agreement, the authorities will regard
the transaction as a donation and, if the
transaction exceeds the R100 000 exemption, you will
have to pay donations tax at a rate of 20 percent of
the transaction value over R100 000. The loan
agreement does not necessarily have to include an
interest rate but must include a repayment date.
How much cash can one deposit when establishing
the family trust (or any trust)?
R100 is the settlement amount, one need to deposit
it into the bank account.
What happens with my trust when I get divorced?
A trust is a complete separate from your personal
As a general rule, assets belonging to a trust that
was created by either party cannot be taken into
account in terms of section 7 of the Divorce Act, 70
Only when the trust is not administered as a
separate entity, in other words as a sham could
assets be exposed to a divorce order.
When does a trust terminate?
- On date of termination as set by the founder;
- by written agreement between parties
- when the trust objective has been achieved; or
- when it has become impossible to achieve the trust
How will my Trust be taxed and do I need to
register the Trust for income tax?
A trust is a regarded as a natural person for income
tax purposes and subject to income tax therefore it
must be registered with SARS. A Trust is taxed at a
fixed rate of 40%. The good news however is that
this applies to income that is retained in the Trust
and not to income that is distributed to a
beneficiary, which in the latter case will be taxed
in the hands of the beneficiary. The so-called
"split income" principle is but one of the
advantages of a Trust. What this means is that
income can be distributed in different proportions
to beneficiaries, so in practice income can be
distributed to for example a beneficiary who has not
yet reached the highest average tax rate. Thus, some
beneficiaries who have not reached the threshold can
benefit by not being taxed at all.
Do I have to register my family trust for VAT?
One would not normally register for VAT.
Does a trust have any tax benefits?
By transferring assets to a trust, there is a huge
saving on taxes payable at death. Simply put NO
personal assets = NO estate duty.
Regarding Income Tax - Income in the trust at the
end of the financial year is taxed at a flat rate of
40. By the trustees exercising their discretion,
income can be distributed to the beneficiaries
through what is called a "conduit principle", tax is
then only paid once in the hands of the
beneficiaries, (as natural persons), at their
marginal tax rate.
Income can also be split between more than one
beneficiary by the trustees, thereby taking
advantage of the lower taxation rates of
Capital Gains Tax: 20% is payable on capital gain at
time of disposal of a trust asset. However, once
again in terms if the conduit principle and taking
into consideration paragraph 80(2) of the Eighth
Schedule to the Income Tax Act 58 of 1962, such gain
can be distributed to a beneficiary and taxable in
their hands at the lesser tax rate.
Do trusts require an Auditor?
It is advisable to make use of accountants that
specialize in trusts so that they can use your trust
in the most advantageous way.
I already have a Will; do I still need a Trust?
On death all assets in your estate attract taxes and
estate administration costs. For example, there's
Capital Gains Tax or CGT. Since you are deemed to
have "sold" all your assets at the current market
value the day before you pass away, the difference
between the market value and the initial cost will
be seen to have resulted in a capital gain. The
total gain is taxable at 10%.
Estate duties and Executors fees - Estate duty is
calculated at 20% of the net value of your estate.
Executors are entitled to a fee of 3.5% (plus VAT)
of the gross value of your capital assets at the
time of death, plus as a 6% (plus VAT) fee on all
income after your death until the estate is wound
up. A further problem is that the estate is frozen
and the process takes time, which often leaves
families in a very desperate situation. Heirs don't
receive anything until all, legacies, creditors,
taxes and administration costs are paid.
Furthermore, minors (children) cannot inherit
anything and all assets left to children are paid to
the Guardians Fund. Placing their assets in the
control of a trust can solve these problems
What is a trust?
A trust is an agreement between an owner of assets
and trustees. In terms of this agreement, the
trustees undertake that they will administer the
trust's assets with the necessary care to the
benefit of the beneficiaries. It is an efficient and
flexible way to ensure that assets are looked after.
It also ensures that assets are objectively managed
and controlled by appointed trustees in the best
interests of the beneficiaries.
The concept of a trust originates from the middle
ages. The landlord would leave his assets and
servants to a trusted person for as long as he was
away hunting or in a war. The trusted person (or
trustee) had full control over the assets until the
landlord's return. This system still applies, in
principle, to this day.
The protection of your loved ones' financial
interests is extremely important in the planning of
your estate. You want to be sure that your family,
and especially minors, will be looked after, and
that your estate and income tax obligations are kept
as low as possible, so that your heirs can enjoy the
full benefit of your estate.
It is paramount to appoint the right trustees. You
have to trust that the trustees will always act in
the best interests of the beneficiaries and that the
trust will be managed in accordance with legislation
and stipulations of a trust act.
A trust's administration must be transparent to
ensure the satisfaction of all concerned
Who Need a Trust
If a minor is an heir to an estate where there is no
will, or if there is a will but no 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 policy.
Persons that cannot take care of their own affairs
If persons are not able to take care of their own
affairs due to physical or mental conditions, their
assets must be placed under the protection of a
curator. The Master of the High Court will give
permission for all expenses as well as the types of
Other instances where a trust can be used to good
In case of indivisible assets
Certain assets may, owing to their nature or because
of circumstances, not be transferred to more than
one person. For example: the Sub-division of
Agricultural Land Act, Act 70/1970, currently
stipulates that agricultural land may not be
sub-divided without the authorisation of the
Minister of Agriculture.
To effect tax savings in the case of:
Estate duty assets transferred to a trust no longer
form part of your own estate. This effectively means
that all the growth in the assets occur in the
trust, and not in your own estate, which effects a
Capital gains tax
Although capital gains tax is higher in a trust, a
trust remains an excellent estate planning
instrument. There are ways of deferring the capital
gains tax on a trust asset to the trust
beneficiaries, with the result that capital gains
tax can then be levied at an individual rate.
If non-allocated income may be capitalised in a
trust, the trust will pay income tax at the present
rate of 40%. All income paid out to income
beneficiaries will be taxable in their hands at
their normal income tax rate.
If your assets grow faster than inflation
Certain investments, such as shares, unit trusts and
market-related policies, have the potential to grow
faster than inflation. If the assets are retained in
your own hands, it could result in estate duty. Such
assets should preferably be in a trust in order to
keep the growth out of your own estate.
If your family composition is complex
If you are divorced, or if you want to keep certain
assets in your family, it could complicate
inheritances and make your will very complex. This
could result in unnecessary delays in settling your
To protect assets
A trust could be structured in such a way that it
does not vest in your hands and will therefore not
form part of your estate. In the event of your
insolvency, creditors will not be able to lay claim
to these ass
Why you want to avoid your childrens money to be
paid in the Guardians fund
The money is not readily accessible
You receive reduced interest on the money
The money is paid out directly to the beneficiaries
in their personal capacity which will attract duties
Who is the beneficiaries of a Trust?
The beneficiaries are beneficial (or equitable)
owners of the trust property. Either immediately or
eventually, the beneficiaries will receive income
from the trust property, or they will receive the
property itself. The extent of a beneficiary's
interest depends on the wording of the trust
document. One beneficiary may be entitled to income
(for example, interest from a bank account), whereas
another may be entitled to the entirety of the trust
property when he attains the age of twenty-five
years. The Donor has much discretion when creating
the trust, subject to some limitations imposed by
law. the main object of a trust is to benefit the
beneficiary. A Trust must always have a
Why it’s necessary to have at least three
Trustees to manage a Trust
In order to prove that you do not have control over
your assets as set out in the Estate Duty Act. If
you can prove that you do not have control over your
assets the assets cannot be seen as yours and estate
duty is thus not payable on the assets. It is
however very important to note that one of the
trustees must at least be an independent Trustee,
which is usually someone like a Attorney, Auditor or