fbpx

Trust registration

Everything you need to know about registering a trust

Trust registration

Everything you need to know about registering a trust

Setting up a Trust 

A trust is a contract that transfers control over property to a few persons or even an organisation. These persons are the trustees of the trust. They have to administer the trust to the benefit of the beneficiaries of that trust.
The trust is setup by the Founder or Donor of the Trust. It is his/her wishes that the assets benefit certain individuals or companies
A trust is registered at the Master of the High Court. All ammendments must also be lodged with the Master and the Master will acknowledge that the change has been effected.

Types of Trusts

A trust can either be a vesting trust or a discretionary trust. The difference between them lies in who owns the assets. In terms of a discretionary trust, the trust owns the assets. In terms of a vesting trust, the beneficiaries own the assets.

Vesting Trust

The beneficiaries have a vested right in the assets of the trust. This means that the beneficiaries already own the assets. The trustees are responsible for managing the assets that belong to the beneficiaries.
 

Vesting Trust

The beneficiaries have a vested right in the assets of the trust. This means that the beneficiaries already own the assets. The trustees are responsible for managing the assets that belong to the beneficiaries.
 

Discretionary Trust

The assets are owned by the trust itself. The trustees have the discretion to distribute assets to beneficiaries. They also manage the trust assets and choose how to distribute the income and to whom. They do not have to distribute the assets in equal amounts amongst the beneficiaries. The beneficiaries do not own the assets unless it is distributed to them.
 

Discretionary Trust

The assets are owned by the trust itself. The trustees have the discretion to distribute assets to beneficiaries. They also manage the trust assets and choose how to distribute the income and to whom. They do not have to distribute the assets in equal amounts amongst the beneficiaries. The beneficiaries do not own the assets unless it is distributed to them.
 

What type of trust should i Set Up?

We usually draw up discretionary Inter-Vivos Trusts for asset protection.

INTER-VIVOS TRUST

Created between living persons. Trust starts after it gets registered with the master. Can be either a vesting or discretionary trust.

TESTAMENTARY TRUST

Created from the will of a deceased person. The trust is only started after the persons demise and only if the will is valid. Can be either a vesting or discretionary trust.

What type of trust should i Set Up?

We usually draw up discretionary Inter-Vivos Trusts for asset protection.

INTER-VIVOS TRUST

Created between living persons. Trust starts after it gets registered with the master. Can be either a vesting or discretionary trust.

TESTAMENTARY TRUST

Created from the will of a deceased person. The trust is only started after the persons demise and only if the will is valid. Can be either a vesting or discretionary trust.

Why is a trust useful?

Protect assets or shares

Assets can be transfered to a trust. Theses assets are then not owned by you and it does not form part of your personal estate. This leaves you free to sign sureties in your personal capacity and not have it afect the trusts assets.

Also, shares of a company can be held by a trust instead of by you personally. Thus, it does not form part of your personal assets. If you have signed surety, your personal creditors can not execute against the assets in trust. Your personal creditors can also not execute against the assets of the company that now belongs to the trust or its shares that now belong to the trust.

Protect assets or shares

Assets can be transfered to a trust. Theses assets are then not owned by you and it does not form part of your personal estate. This leaves you free to sign sureties in your personal capacity and not have it afect the trusts assets.

Also, shares of a company can be held by a trust instead of by you personally. Thus, it does not form part of your personal assets. If you have signed surety, your personal creditors can not execute against the assets in trust. Your personal creditors can also not execute against the assets of the company that now belongs to the trust or its shares that now belong to the trust.

Reduce the costs & taxes you pay when you pass away

When you pass away, 20% goes to the state if the value of your estate exceeds R3.5m.  Furthermore, you will pay 6% to 7% in executor fees for winding up the estate. bIf your personal estate has R10m, you will loose R2m to taxes and costs.

If the assets were in trust, the trust will still own the assets with your passing. Thus, there is no taxable event. The beneficiaries or someone on their behalf will simply take over the management of the trust and its assets.

Reduce the costs & taxes you pay when you pass away

When you pass away, 20% goes to the state if the value of your estate exceeds R3.5m.  Furthermore, you will pay 6% to 7% in executor fees for winding up the estate. bIf your personal estate has R10m, you will loose R2m to taxes and costs.

If the assets were in trust, the trust will still own the assets with your passing. Thus, there is no taxable event. The beneficiaries or someone on their behalf will simply take over the management of the trust and its assets.

Leave assets to beneficiaries (and descendants)

Just by bypassing your personal estate, the full value of the assets and its income potential is transfered to the beneficiaries. The beneficiaries usually consists of your descendants like your children. Your children can thus become the trustees of the trust or if you prefer, someone else can manage the trusts and its assets on their behalf.

Trusts are very useful in instances where both parents have demised and the child can not legally control the inherited estate. In such instances, the entire estate gets paid to the gardians fund and only when the child turns 18 is he / she entitled to the funds. Trusts on the other hand can be used to hold the assets on behalf of the minor children, and someone trustworthy can be appointed to manage the trust on their behalf.

Leave assets to beneficiaries (and descendants)

Just by bypassing your personal estate, the full value of the assets and its income potential is transfered to the beneficiaries. The beneficiaries usually consists of your descendants like your children. Your children can thus become the trustees of the trust or if you prefer, someone else can manage the trusts and its assets on their behalf.

Trusts are very useful in instances where both parents have demised and the child can not legally control the inherited estate. In such instances, the entire estate gets paid to the gardians fund and only when the child turns 18 is he / she entitled to the funds. Trusts on the other hand can be used to hold the assets on behalf of the minor children, and someone trustworthy can be appointed to manage the trust on their behalf.

Trusts as Shareholders of your company

If you put your companies shares in a trust, those shares are not part of your personal estate. The trust will then own and control the voting rights as we as the share equity. This is useful if the directors are asked to sign sureties. The creditor may only execute against the surety and not against the trust. The trust’s assets are thus safe, unless the trust has also signed surety.

Trusts and taxes

Income Tax & the Conduit Principle

Trusts are taxed at 45% of its income. You can however utilize the conduit principle in trust law to have the income of the trust flow through the trust to the beneficiaries. The income is then taxed on the beneficiaries scale. If that distribution is below the minimum taxable income, the distribution is free of tax.

Donations Tax

Should you donate more than R100,000.00, you will be taxed 20% on the value exceeding 100,000.00 in any given year. A trust is allowed to donate no more than R10,000.00 a year. After that it will be taxed 20% on donations. Spouses can donate to each other without incurring any taxes. Donations to public benefit organisations are also donations tax exempt.

Transfer Duty

Is a tax that is payable if the trust sells a property. The amount depends on the value of the property being sold. Besides transfer duty, the trust will also have to pay bond registration fees and legal costs associated with the transfer.

Capital Gains Tax

On certain assets such as property, you will have to pay a tax called capital gains tax if the trust sold the property for more than what it bought it for.