Let’s talk about trusts

Trusts are governed by The Trust Property Control Act No. 57 of 1988 (TPCA) as a legal arrangement that allows someone to hold assets, without owning them, for the benefit of the trust beneficiaries. A trust beneficiary is entitled to benefit under the trust arrangement, from discretionary rights determined by a trust’s constitutional document, a trust deed, which sets out the framework in which the trust must operate, including its powers and limitations. A trust may be used to hold and protect personal or business assets, as well as hold shares in a business. This could potentially be beneficial in the event of liquidation, sequestration, or divorce. There are two main types of trusts:

• Inter vivos trust – a trust between living persons, such as a family trust or an employee share ownership trust, created by and between living persons through an agreement.
• Testamentary trust – created in terms of a will in relation to a deceased estate.

All trusts have the same basic structure:

• Founder – the individual who creates the trust;
• Beneficiaries – those individuals for whose benefit the trust is created; and
• Trustees – those who administer and control the trust assets on behalf of the beneficiaries.

Trustees are required to administer the trust solely for the benefit of the trust’s beneficiaries and the Master’s office ensures that those who benefit from the trust do not solely control the trust. Should all trustees be beneficiaries, the Master may insist on the appointment of an independent outsider as one of the trustees. Things to consider before setting up a living trust:

• The purpose or object of the trust;
• Trustees’ powers; and
• Administrative procedures.

Once incorporated, the trustees must ensure that the trust complies with TPCA and all other applicable legislation, including but not limited to:

• The Income Tax Act, 1962 as amended;
• The Tax Administration Act, 2011;
• The Value-Added Tax Act, 1991;
• The Banks Act, 1990; and
• The Financial Intelligence Centre Act, 2001.

A trust is subject to income tax at a rate of 40%, as well as Capital Gains Tax. Trust income may be distributed to the trust’s beneficiaries through the conduit principle, by which tax is only paid at the individual marginal tax rate of the recipient beneficiary. At Resolve, we specialize in assisting our clients by setting up and maintaining trusts, according to the client’s unique requirements. We have a team of professional consultants ready and equipped to assist with all your trust needs, from incorporation to winding up.