Category Archives: Trusts

THE BENEFITS OF CREATING A TRUST

Trusts are well-known to facilitate effective estate planning and continuity planning strategies. That said, setting up a trust – whether an inter vivos (between the living) or a testamentary (created in a will) − should be carefully considered and not just implemented blindly.

The difference between testamentary and inter vivos trusts

  1. A testamentary trust is established when a person (the founder) makes provision for establishing a trust in their will. The trust does not come into existence until the founder dies.
  2. An inter vivos trust is set up between the living. In other words, property is transferred before death to the trust by its founder and managed by the trustees for the benefit of another person or persons.

The death benefits of creating an inter vivos trust exceeds the cost – both in time and money. According to The Estate Duty Act, upon death, a duty is levied against your estate known as estate duty. The nett value of any estate will be determined by deducting all liabilities from your assets of your estate, both real and deemed.

Should you create a testamentary trust, upon death the assets are in your name and will need to be transferred to the trust posthumously, meaning all assets are taken into account when assessing the duty payable.

Advantages

Taking the above into account, here are some benefits you could experience from creating a trust:

  1. Reducing estate duty: Inter vivos trusts can be used to minimise estate duty. No estate duty should be payable on assets owned by the trust as a trust does not die.
  2. Protection against creditors: As the trust’s assets are not owned by the beneficiaries, creditors do not have a claim on the assets. This advantage is especially important for people who could be exposed to potential liability. Companies as well as individuals are able to transfer assets into trusts.
  3. Efficient succession: Since trusts never die, beneficiaries will be able to continue enjoying the assets if one beneficiary were to pass away.

Disadvantages

Despite the advantages, there are also some disadvantages of having a trust. They include the following:

  1. Costs: The costs of setting up a trust can be high. If assets are transferred into the trust, then transfer duty needs to also be paid.
  2. Duties of trustees: Trustees could find themselves personally liable for losses suffered by the trust if it can be proven that they did not act with care, diligence and skill according to Section 9 of the Trust Property Control Act.

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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

References:

https://www.iprotect.co.za/articals-trust-info/article-arcives/why-an-intervivos-trust-as-opposed-to-a-testamentary-trust.html

http://www.entrepreneurmag.co.za/advice/starting-a-business/start-up-advice/should-i-set-up-a-trust/

https://www.findanattorney.co.za/content_inter-vivos-trust

HOW DO I REGISTER A TRUST?

A trust is an agreement between the person who owns the assets and the appointed trustees. A trust can be a good way to preserve your wealth for your family and children. A well-managed trust will make sure that anyone who is a beneficiary of the trust benefits from it. The trustees have the important job to administer the trust and its assets objectively with the best interests of the beneficiaries in mind.

Trusts and their administration fall under the Trust Property Control Act no 57/1988.

What types of trusts are there?

It’s important to note that there are two types of trusts. An inter vivos trust and a testamentary trust. A testamentary trust is one that’s formed from the will of a deceased person. In the case of a testamentary trust the deceased’s last will serves as the trust document. An inter vivos trust is created between living persons, and will form the basis of this article. Inter vivos trusts can limit estate duty and preserve your assets and wealth for your descendants. Certain financial institutions assist in setting up a trust and can act as trustees.

Registering an inter vivos trust

To register an inter vivos trust with the Master of the High Court, the following documents must be lodged.

  1. Original trust deed or notarial certified copy thereof.
  2. Proof of payment of R100 fee, for registration of a new Trust.
  3. Completed Acceptance of Trusteeship (J417) and Acceptance of Auditor Application (J405) forms.
  4. Bond of security by the trustees – form J344 (if required by the Master)

* There are no costs involved in amending an existing Trust.

These documents are also required for the Master to issue the trustees with letters of authority for administering the trust. A trustee may not proceed to administer the trust without the written authority of the Master.

If the trust’s assets or majority of its assets are located in a particular area, then the inter vivos trust has to be registered with the Master who has jurisdiction in that area.

De-registering of a trust

The Master can de-register the trust only once it has been terminated. The common law makes provision for the termination of a trust as the Trust Property Control Act makes no such provision. The following circumstances can be grounds for a trust to be terminated:

  1. by statute
  2. fulfilment of the object of the trust
  3. failure of the beneficiary
  4. renunciation or repudiation by the beneficiary
  5. destruction of the trust property
  6. the operation of a resolutive condition

You will still need the original letter of authority, bank statements reflecting a nil balance on the final statement and proof that the beneficiaries have received their benefits.

Administering the trust

Trustees are required to comply with the Trust Property Control Act, which determines how trusts should be administered and the role of the trustees. If trustees fail to comply with the Act they may face criminal prosecution. The trustees have to always act with the best interests of the beneficiaries in mind.

Some legal requirements of trustees include not being able to make secret profits, taking care and being objective when administering trust assets and always acting in good faith.

Reference:

Justice.gov.za. The Department of Justice and Constitutional Development, Administration of Trusts. [online] Available at: http://www.justice.gov.za/master/trust/ [Accessed 19/05/2016].

Sanlam.co.za. Sanlam Trusts. [online] Available at: https://www.sanlam.co.za/personal/financialplanning/willstrustsestates/Pages/trusts/ [Accessed 20/05/2016].

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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

THE BENEFITS OF CREATING A TRUST

Trusts are well-known to facilitate effective estate planning and continuity planning strategies. That said, setting up a trust – whether an inter vivos (between the living) or a testamentary (created in a will) − should be carefully considered and not just implemented blindly.

The difference between testamentary and inter vivos trusts

  1. A testamentary trust is established when a person (the founder) makes provision for establishing a trust in their will. The trust does not come into existence until the founder dies.
  2. An inter vivos trust is set up between the living. In other words, property is transferred before death to the trust by its founder and managed by the trustees for the benefit of another person or persons.

The death benefits of creating an inter vivos trust exceeds the cost – both in time and money. According to The Estate Duty Act, upon death, a duty is levied against your estate known as estate duty. The nett value of any estate will be determined by deducting all liabilities from your assets of your estate, both real and deemed.

Should you create a testamentary trust, upon death the assets are in your name and will need to be transferred to the trust posthumously, meaning all assets are taken into account when assessing the duty payable.

Advantages

Taking the above into account, here are some benefits you could experience from creating a trust:

  1. Reducing estate duty: Inter vivos trusts can be used to minimise estate duty. No estate duty should be payable on assets owned by the trust as a trust does not die.
  2. Protection against creditors: As the trust’s assets are not owned by the beneficiaries, creditors do not have a claim on the assets. This advantage is especially important for people who could be exposed to potential liability. Companies as well as individuals are able to transfer assets into trusts.
  3. Efficient succession: Since trusts never die, beneficiaries will be able to continue enjoying the assets if one beneficiary were to pass away.

 Disadvantages

Despite the advantages, there are also some disadvantages of having a trust. They include the following:

  1. Costs: The costs of setting up a trust can be high. If assets are transferred into the trust, then transfer duty needs to also be paid.
  2. Duties of trustees: Trustees could find themselves personally liable for losses suffered by the trust if it can be proven that they did not act with care, diligence and skill according to Section 9 of the Trust Property Control Act.

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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

https://www.iprotect.co.za/articals-trust-info/article-arcives/why-an-intervivos-trust-as-opposed-to-a-testamentary-trust.html

http://www.entrepreneurmag.co.za/advice/starting-a-business/start-up-advice/should-i-set-up-a-trust/

https://www.findanattorney.co.za/content_inter-vivos-trust

HOW TO REGISTER AN INTER-VIVOS TRUST

A3_BIn South Africa there are mainly two types of trusts that are registered. An inter-vivos trust can be created between living persons, and a testamentary trust is created in the will of a deceased.

An inter-vivos trust is registered at the office of the Master of the High Court in whose area of jurisdiction the main assets of the trust are or will be held.

The first step is to draw up a valid trust deed. A trust deed is a contract between the founder of the trust and the trustees, for the benefit of a third party or parties, known as the beneficiaries. In terms of the trust deed, the founder agrees to transfer certain assets to the trustees of the trust for the benefit of the beneficiaries. The trust deed must stipulate who the first trustees of the trust are going to be. In many instances the Master will insist on at least one independent trustee to be appointed. This means that the independent trustee will receive no benefit from the trust assets apart from the specified and reasonable trustee remuneration. The beneficiaries must be specified in the trust deed, as well as their entitlement to either the capital of the trust, the income of the trust assets, or both.

A trust deed is a valid contract and therefore subject to all applicable laws. Furthermore, there are significant tax, financial and other consequences of being involved in a trust, whether as trustee, founder or beneficiaries. Therefore it is imperative to seek professional advice when drawing up this deed.

The duly signed and witnessed trust deed must be submitted to the Master of the High Court, together with the completed and signed Acceptance of Trusteeship for all trustees and certified copies of their identity documents. This Acceptance of Trusteeship states the basic information of the trustees that the Master requires, as well as certain declarations made by the trustee. If the Master requires the trustees to furnish security, proof of the bond of security by those trustees must be provided to the Master when the trust is registered. Form JM21 sets out certain requirements and information that must be supplied to the Master together with the other documents set out in this paragraph. This information include details on the professions or business occupation of the trustees to be registered, any previous experience that these trustees might have in the administration of trusts, the name and branch of the bank where a bank account will be opened for the trust, and so forth. An original undertaking by an auditor or accounting officer must accompany form JM21. Lastly, proof of the payment of the prescribed fee of R100 must be submitted.

On receipt of the above documents in accordance with all the requirements, the Master will issue a Letter of Authority to the trustees. The trustees may then act on behalf of the trust.

Any amendments to the original trust deed must be placed on record with the Master of the High Court where the original trust deed is on record.

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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

IS IT BENEFICIAL TO CREATE A TRUST?

A4BA Trust can be described as a legal relationship which has been created by the founder, who places assets under the control of Trustees. This either happens during the founder’s lifetime (inter vivos trust) or at the death of the founder (testamentary trust). This article will focus on the advantages and disadvantages of an inter vivos trust.

The advantage of a trust is firstly, that inter vivos trusts can be used to minimise estate duty. No estate duty should be payable on assets owned by the Trust as a Trust does not terminate or come to an end, since it has perpetual succession. Estate duty is currently taxed at 20% of the gross estate value. This saving in estate duty can be substantially large, especially for high net worth individuals who are worth millions of rands. Secondly, as the Trust’s assets are not owned by the beneficiaries, the creditors of the beneficiaries do not have a claim regarding the assets of the Trust. This advantage is especially important for people who are exposed to potential liability. Companies as well as individuals are able to transfer assets to Trusts. Lastly, because Trusts have perpetual succession, beneficiaries will be able to continue enjoying the benefit of the Trust assets even if one of the Trustees were to pass away.

The disadvantages are firstly, the costs of setting up a Trust, which can be high. It may cost up to R 20 000 to set up a Trust. If immovable property is transferred to the Trust then transfer duty needs to be paid. The founders of the Trust may also be liable to pay Donations tax, which is taxable at 20% of the value of the assets transferred to the Trust. Transfer duty is taxed according to a sliding scale. Secondly, Trustees could find themselves personally liable for losses suffered by the Trust if it can be proven that they did not act with care, diligence and skill in terms of section 9 of the Trust Property Control Act. It is important to note that “skill” requires more than just acting in good faith. Trustees may be proven to be negligent not only if they invested in risky investments, but also if they invested capital too conservatively, causing the capital not to grow sufficiently. Trustees also need to be aware of the fact that they can still be held liable if only one Trustee has signing power on behalf of the Trust and he/she makes a poor decision that holds all the Trustees liable for his negligence.

The founder of the Trust needs to recognise that the assets in the Trust do not belong to him/her anymore. The assets belong to the Trust. Should this loss of control (from founder to Trust) not occur, the Trust may be seen as an alter ego of the founder, which could result in the assets being included in creditors’ claims as well as having estate duty consequences.

The earnings from the assets in the Trust are taxed at 40%, and interest exemptions do not apply to Trusts. Also, the inclusion rate for Capital Gains tax for an inter vivos trust is 66.6% whereas the inclusion rate for individuals is 33.3%. Lastly, as we can see from the above, a Trust is not for everyone.

It is important to weigh up the advantages and disadvantages before deciding whether to go ahead or not. The best decision would be to speak to a certified financial planner or attorney who can assist you in making the correct decision regarding your personal situation.

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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)