Trust Q & A
 

Advantages of a trust

There are a number of advantages to placing assets in a trust for estate planning purposes. These advantages include:

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 purposes.

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 protected.

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.

Asset protection

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 debtor.

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 effective.

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) is facilitated:
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 manner.

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 testator.
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 beneficiary.

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 will.

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.

Discretionary 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.

Vested trust


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:


Family trust

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 Trust;
To have regular Trust meetings
To keep records of all meetings and the Trust Records
To keep Financial records
To submit returns to the receiver of revenue
What is a trust is and why the benefits cannot be ignored
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 protect it.

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 taxes.
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 not costly.

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 trust.

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 legal personality.

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;
Testamentary trusts,
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 point out.

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 contract

Trusts Benefits
Asset Protection
Divorce
Business creditors
General creditors
Claims
Retrenchments
Sureties
As individuals we face a number of potential situations which can result in us losing all of our hard earned assets, cash, investments and properties.

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 not settled.

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 individual.

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 transferred assets.

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 in perpetuity.

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 future descendants.

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 events transpiring.

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 trustee)
• 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 means;

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 investment;

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 Trust;

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 Trust;

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 person;

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 Trust property;

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 that purpose;

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 Trust;

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 beneficiary;

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 world.

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 criminal prosecution.

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 faith.
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).

Testamentary Trust
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 lifetime.

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 to:

Fellow trustees, beneficiaries and guardians of minor children
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 minors/incapacitated dependants.
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.

Trust Explained
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 surety.
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 distributed.

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 trusts.

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 valid?
- 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 time?

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 assets?

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 discretion.

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 wealth.
- 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 beneficiaries' creditors.
- 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 accountable.
- Administer and protect Trust Assets.
- Act in good faith towards Trust assets and beneficiaries.

What happens when a trustee die?

Most deeds cater for replacement or substitute trustees.

What happens to my assets when I transfer it to my trust?

When the assets are transferred to the Trust, ownership thereof passes in its entirety to the trust and the trustees become the custodians thereof.

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 trust.

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 three years.

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 estate.

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 of 1997.

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 objective.

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 beneficiaries.

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

Minors

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 investments made.
Other instances where a trust can be used to good effect:
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
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 tax saving.
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.
Income tax
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 estate.
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 an fees.

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 beneficiary!!.

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 Accountant.
 

 


 

 

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