Tax and Trusts
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 www.sars.gov.za.