Q & A : Trusts

To rent or not to rent
November 17, 2020

Can anyone register a trust?

Yes, but it is a costly and administratively complicated process and it is therefore not suited for every individual.  In the event that your assets (including life policies) exceed R3.5 million and if the assets consist of capital appreciating items it would be advisable to consider a trust.

Is it expensive to register a trust?

The initial capital investment might be costly depending on how complicated your trust is.  However, most people considering a trust would rather pay the premium in order to safeguard their financial legacy.   A person considering a trust must also take into account the financial burden of the annual compulsory costs i.e. financial records, taxation of the trust, recordkeeping etc.

How long does it take to register a trust?

As with everything, it depends.  It normally takes up to 6 weeks for registration to take place, however, recently with the delays currently experienced in the master’s office the registration process has been extended considerably and it is advisable that if you consider registering a trust, you should proceed rather earlier than later.

Who are the parties to a trust?

  • Donor / Founder:  the person setting up the trust
  • Trustees:  the trustees are the custodians of the assets in the trust, but they do not necessarily have a personal interest in the assets. Trustees have to act independently and in the best interests of the trust.  In order to promote the independence of the trust, it is advisable to appoint at least one independent trustee e.g.an accountant or Legal Practitioner
  • Beneficiaries:  the beneficiaries are the individuals / entities entitled to benefit from the trust’s assets or income.

How does a trust acquire assets?

Assets can be transferred into the living trust by either selling it to the trust (through a loan granted to the trust) or by donating cash or other assets to it (any person can donate R100 000 per year tax free; 20% donations tax applies to further donations within the year).  Once the trust has capital available it can acquire assets if allowed to do so in terms of the trust deed.

What are the benefits of a trust?

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

  • Asset protection (protection of assets from creditors).  Assets held by the trust are not owned by the trustees or the beneficiaries, so creditors of the trustees or beneficiaries can have no claim against the trust assets (there are exceptions). 
  • Continuity (A trust can span multiple generations). When a trustee dies, the trust and any assets owned by it, remain unaffected. Upon the death of a beneficiary, only the portion of the trust assets that vests in that beneficiary upon date of death, would form part of the beneficiary’s estate for estate duty purposes.

What are the disadvantages of a trust?

  • Additional expenses:  A trust is deemed to be a separate legal entity.  As such financial statements, income tax return and Bi-annual provisional tax returns are required on a yearly basis.
  • Administrative requirements:  A trust must keep all records from inception of the trust to at least 5 years after the trust has been deregistered.  Trustees must minute all meetings and resolutions about all transactions that must be drafted and retained.  It is furthermore compulsory of any trust to maintain a separate bank account as well as an asset register.
  • Relinquishment of control:  A donor  or founder must relinquish all control over assets donated to the trust.  SARS may deem income back to the donor of the asset if there is not adequate relinquishment of control over the asset.  Furthermore, a court may look through the trust if there is not adequate separation of control between the trustees and the trust assets.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE)