How to Set up a Trust in South Africa
What is a trust?
A trust is an arrangement where an individual or a corporation carries on business for the benefit of other people or another individual.
How many types of trust do we have in South Africa?
There are two types of trust namely an inter-vivos trust and a testamentary trust
How can I set up a trust in South Africa?
The following documents must be submitted to the Master of the High Court in the relevant provincial authority for the registration of a trust:
1. A cover letter to the Master of the High Court
2. Trust Registration and Amendment form (J401)
3. Two signed trust deeds
4. Proof of payment of the Master of the High Court’s fee of R 250
5. Master of the High Court’s Annexure B form for the R 250 fee
6. Acceptances of trusteeship by trustee (J417) by each of the trustees, including a summary of the proposed trustees’ qualifications and their experience in managing trusts.
7. A statement by trustees
8. A sworn affidavit signed by the independent trustee
9. A certified copy of the Identity Document of each of the trustees
10. Beneficiaries Declaration (J450)
11. An undertaking by the auditor/accountant (J405) to administer the accounting records of the trust in accordance with generally established accounting practice.
How are trusts taxed in South Africa?
A trust, where taxed, is taxed at a flat rate of 45% and between 18% – 45% for special trust.
How does a beneficiary get money from a trust?
There are three different ways money is distributed to a beneficiary. They are outright, staggered and discretionary distributions. Outright distribution allows the beneficiary receives money in the trust with no restriction, staggered distribution allows the beneficiary receives money at precise time like once in a year or month. Discretionary distributions permits funds to be transferred to a beneficiary at the time specified by the trustee in a discretionary trust.
What are the benefits of a trust?
1. A trust provides protection on assets and limits liability
2. It maintains privacy and confidentiality of the beneficiary’s assets
3. Trust help preserve family wealth against divorce.
4. Trusts separate the control of an asset from the owner of the asset and so may be useful for protecting the income or assets of a young person or a family unit.
5. Trusts provides flexibility in the allocation of returns and capital gains among beneficiaries.
6. Beneficiaries of a trust are not liable for the trust debts, unlike sole traders or partnerships.
7. Beneficiaries of a trust pay tax on income they receive from a trust at their own marginal rates.
8. A Trust dictates the allocation of benefits to family members that lessens misunderstanding.
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What are the disadvantages of a trust?
1. It is costly to establish and maintain. Most banks and law firms function as the trustee and need to be compensated.
2. The structure is more complicated and difficult to understand.
3. Loss of ownership and control of assets.
