3. Legal nature of a trust
• A Trust is NOT like a company or cc.
• A Trust does not posses a legal personality.
• A trustee, in his legal capacity, is regarded as a
separate entity. Trustee is the owner of the bare
dominium.
• Section 1 of the Income Tax Act defines a trust as a
“person”.
• Trust has the structure of a stipulatio Alterii.
• Inter vivos trust is an agreement and all the rules of
the law of contract apply.
4. Inter Vivos v Testamentary Trusts
• Pro-active planning v Re-active
planning.
• Testamentary trust is more ridged and
it cannot be altered.
• Inter Vivos Trust is normally open
ended with regards to vesting date
whereas a Testamentary Trust usually
has a fixed vesting date.
5. Getting assets into a trust
• Donate but will attract donations
tax at 20%.
• Interest free loan.
• Bequest in terms of a will.
6. Benefits of a Trust
• Ensures the smooth handover of assets from
one generation to the next.
• Cares for assets for those who are unable to
look after the assets themselves i.e. minors and
elderly battling with dementia. Alternative to
the Guardians Fund.
• Donations tax.
If a natural person makes a donation greater than
R100k then donations tax at 20%. A distribution from
a trust attracts no donations tax.
7. Benefits of a Trust
• Reduction of death duties which are made
up of :– Deemed Capital Gains Tax – max 13.3%.
– Executor fees – max 3.99%.
– Estate duty tax – 20% .
• Ability to split income and capital gains to
multiple beneficiaries.
• Protection of assets from creditors.
8. Disadvantages of a trust
• In order for a valid trust to come into existence the
donor must hand over ownership and control to
the trustees.
• The trustees become owners of the asset.
• Decision making is now made in terms of the deed
and not by 1 trustee ie the original donor.
• Costs: Banks normally charge between 1 – 2% of
capital to act as trustees plus 6% on income
collected.
10. Trust Deed
1. The Deed of Trust is the trustees’ constitution and if
a responsibility, duty or power is not expressly stated
then it cannot be implied by the trustees. The
trustees have no authority to ‘assume’ that they may
carry out a particular duty or power and if they do so
then they are acting ultra vires.
2. It is a dynamic document that must be reviewed
regularly. Tax and trust laws change.
3. Experience has shown that at least 9 out of 10 trusts
either have wrong clauses or are missing clauses.
12. Roles and duties of a trustee
• Ensure that the trust property is adequately
insured.
• Funds are properly invested by measuring fund
managers performance to approved benchmarks.
• Determine the short, medium and long term
income and capital needs of the beneficiaries.
• Ensure that the provisions of the trust deed are
complied with and upheld at all times.
• Ensure that all the trusts’ statutory requirements
are complied with.
13. Roles and duties of a trustee
• Prepare and maintain a trust asset register
(investments and fixed assets).
• Conduct trustee meetings annually, biannually or quarterly.
• Record minutes of the trustee meetings and
investment decisions.
• Maintain and safe keep the minute book.
• Ensure loan agreements are kept.
14. Role of independent trustee
• Now required after decision of Land &
Agricultural Bank v Parker.
• Shouldn’t just appear in name.
• Must be party to all decisions and should
attend all trustee meetings.
• His/her conduct could show if the trust is a
bona fide trust or a sham.
16. Beneficiaries of a Trust
• Types of beneficiaries:
– Contingent.
– Vested.
• Beneficiaries right to information from the
trustees.
• Beneficiaries right to be part of changes to the
trust deed.
18. Inter Vivos Trusts
Taxation of trusts.
– Income tax
• Income is taxed in the hands of the trust at 40%. No
rebates are granted.
• Income is distributed to the beneficiaries and taxed
in their hands at their tax rates. Income retains it’s
identity.
• Opportunities through distribution i.e. university
fees for children and school fees for grandchildren.
• Attribution of income and capital gains to the donor.
19. Inter Vivos Trusts
Taxation of trusts cont …
– Capital Gains Tax
• Gains are taxed in the hands of the trust at
26.6%. No rebates are granted.
• Gains are distributed to the beneficiaries and
taxed in their hands at their tax rates.
Maximum rate would then be 13.3%.
• Attribution of gains to the donor. Maximum
rate would then be 13.3%.
20. Trusts and your will
• Don’t take it for granted that you can
automatically bequeath assets to your IV trust. If
the definition of beneficiaries are too wide the
bequest could fail Braun v Blann & Botha.
• Nominating a replacement trustee.
• Great opportunity to transfer fixed property as
there are no transfer duties.
• Section 9(4) of the transfer duty act.
21. Inter Vivos Trusts
Conclusion
– Ensure that one of the trustees is independent.
– Ensure that your trust deed is “compliant” with
current legislation and case law.
– Ensure that all the statutory requirements are
complied with i.e. trustee meetings, minutes of
all decisions etc.
– Ensure your will “compliments” your trust.
– Remember, both are dynamic documents and
should be reviewed on a regular basis!
