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 "settlor", "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 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
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 my
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
Documentation needed to open an account:
• - A copy of the Trust deed.
• - A copy of the Letter of Authority issued by the
Master of the High Court
• - A bank resolution whereby the Trustee in charge
of the administration of the Trust has signatory
powers over the bank account
• - FICA documentation of the trustees:
• - Certified copy of ID document
• - Proof of residential address
What will a bank request from a Trust for FICA
purposes (Source: Standard Bank)
Information needed Acceptable verification documents
• Identifying name
• Identifying number
• List of named beneficiaries
• List of authorised trustees • Trust deed or other
founding document in terms of which the trust was
• Trust deed or other founding document - it is
noted that if beneficiaries are not named in the
trust deed, information pertaining to how the
beneficiaries are determined must be recorded.
• The authorisation given by the Master's Office to
each trustee to act in that capacity (Section 7 of
the Trust Property Control Act). In the case of a
foreign trust an official document issued by an
authority in the relevant country where the trust is
created that reflects these particulars should be
• List of authorised trustees • The authorisation
given by the Master's Office to each trustee to act
in that capacity (Section 7 of the Trust Property
Control Act). In the case of a foreign trust an
official document issued by an authority in the
relevant country where the trust is created that
reflects these particulars should be supplied.
• Address of the Master's office where the trust is
registered As per authorisation given to the
Profiling information (only for new customers)
• Source of income
• Source of funds that the customer expects to use
in concluding transactions in the course of the
• Type of activity that we can expect on the account
No verification documents are currently required.
All trustees must be identified as per the mandatory
information for the category of customer within
which they fall.
All named beneficiaries must be identified as per
the mandatory information for the category of
customer within which they fall.
All authorised signatories must be identified as per
the mandatory information for individual customers.
The founder or settlor of the trust (the provider of
the funds) must be identified as per the mandatory
information for the category of customer within
which they fall.
Persons who act on behalf of a trust
• They must be identified and verified as per the
mandatory information for individual customers.
• Written confirmation that the person has authority
to act on behalf of the trust is needed.
For individual related parties
• No residential address verifications are required
• No profiling information is required
• Contact details is an additional requirement.
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
Are there any FICA requirements for trusts?
FICA is an abbreviation for the Financial
Intelligence Centre Act 38 of 2001 (as amended)
which deals with the so-called "Know your client"
term. For Trusts discretionary trusts which the
requirements are as follows:
• - Trust IT (registration number);
• - address where the trust was registered;
• - letter of authority;
• - the contact details;
• - the income tax number (if issued by SARS);
• - name and Id number of the founder of the trust;
• - names and Id numbers of the trustees; and
• - names and Id number/s of the beneficiary/ies.
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.