Tax and Trusts

Premier Magazine (South AFrica) - - Contents - Text: April Dwyer Im­age ©

If you want your near­est and dear­est to be spared the hoops and high costs of deal­ing with trans­fer­ring as­sets when you are no longer among the liv­ing, a trust may seem like the way to go.

But, cre­at­ing a trust is not just about nom­i­nat­ing ben­e­fi­cia­ries and avoid­ing the tax man – it is a com­pli­cated le­gal pro­ce­dure, and one best en­tered into with the knowl­edge of a sea­soned le­gal and tax pro­fes­sional.

So, be­fore de­cid­ing to ven­ture on the trust route and hir­ing a lawyer to draw up the doc­u­ments, there are some as­pects you need to know, namely: what type of trust would suit your needs, what ex­actly the tax ben­e­fits are of a trust, and how South African law views trusts.

Types of Trusts

There are a num­ber of trust classifications in South Africa:

An own­er­ship trust is when the founder transfers own­er­ship of as­sets or prop­erty to one or more trustees to be held for the ben­e­fit of the ben­e­fi­cia­ries (such as your chil­dren) of the trust.

A be­wind trust is when the founder transfers own­er­ship of as­sets or prop­erty to ben­e­fi­cia­ries of the trust, but con­trol over the as­sets is given to the trustee or trustees – so, the trustee would be able to say “yay” or “nay” re­gard­ing the de­ci­sions ben­e­fi­cia­ries make con­cern­ing the trust.

A cu­ra­tor­ship trust is when the trustee or trustees ad­min­is­ter the as­sets of the trust for the ben­e­fit of a ben­e­fi­ciary who does not have the ca­pac­ity to do so. For ex­am­ple, if the ben­e­fi­ciary has a dis­abil­ity and is un­able to make sound de­ci­sions. The Ben­e­fits of a Trust

Ac­cord­ing to lo­cal fi­nan­cial plan­ning com­pany, In­te­grated Es­tate Plan­ning,

dis­tanc­ing your­self from your as­sets is one of the top rea­sons for hav­ing a trust. This can as­sist you in min­imis­ing cer­tain forms of taxes, such as es­tate duty tax, legally. While per­haps the thought of tak­ing your­self far­ther away from your hard-earned as­sets may seem daunt­ing, this de­ci­sion is one for the fu­ture.

When you die, your es­tate, which you most likely want to go to your loved ones as soon as pos­si­ble, could be frozen for up to two years – that is two years of bat­tling and pay­ments for your fam­ily to en­dure while mourn­ing. If a trust is in place, the two years can be nar­rowed down to a mere three weeks. “The as­sets in a trust are not frozen on your death and the ben­e­fi­cia­ries of the trust have al­most im­me­di­ate ac­cess to them. All that is re­quired is for a new trustee to be ap­pointed to re­place the de­ceased trustee, which takes ap­prox­i­mately three weeks,” ex­plains In­te­grated Es­tate Plan­ning.

Ac­cord­ing to Tanya Co­hen, head of Glacier Fidu­ciary Ser­vices, a divi­sion of Glacier by San­lam, a trust is a great way to man­age fam­ily as­sets. She ex­plains on Fin24, “A trust can pro­vide a cen­tralised as­set man­age­ment struc­ture and con­trolled dis­tri­bu­tions for ben­e­fi­cia­ries who are not in a po­si­tion to man­age as­sets them­selves. This may be due to mi­nor­ity, dis­abil­ity, or prodi­gal­ity. A trust can pro­vide for joint own­er­ship of in­di­vis­i­ble as­sets like hol­i­day homes and farms.”

Trusts and the Law

Cre­at­ing a trust is not a way to be done with the tax man. No mat­ter the trust you cre­ate, it has to be reg­is­tered with SARS.

The trustee of a trust is nor­mally the rep­re­sen­ta­tive tax­payer of the trust, but depend­ing on the cir­cum­stances, the in­come of a trust can be taxed ei­ther in the hands of the donor, ben­e­fi­ciary, or the trust it­self.

When the trust is taxed on the in­come it gen­er­ates, it is taxed at a flat rate of 45%; al­ter­na­tively spe­cial trusts are taxed at a slid­ing scale from 18% to 45%. The two trusts clas­si­fied as “Spe­cial Trusts” ac­cord­ing to SARS is a trust cre­ated solely for the ben­e­fit of a per­son(s) with a dis­abil­ity, and a trust cre­ated solely for the ben­e­fit of a per­son(s) who is a rel­a­tive of the per­son who died and who are alive on the date of death of that de­ceased per­son, and the youngest of the ben­e­fi­cia­ries is younger than 18.

If you know the ins and outs of the process and the ben­e­fits, and have a knowl­edge­able pro­fes­sional by your side, cre­at­ing a trust to ben­e­fit your loved ones and save your fam­ily the ex­haust­ing ad­min­is­tra­tion of trans­fer­ring as­sets could be your ideal route.

To read more about how SARS views trusts, visit

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