Types Of Trusts In South Africa
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What Are The Different Types Of Trusts In South Africa
In South Africa, trusts are categorised into several types based on their purpose and the conditions under which they are established.
Testamentary trusts are created as per the stipulations in a will and only come into effect upon the death of the testator.
Living trusts (or Inter Vivos trusts), on the other hand, are established during the lifetime of an individual and can be either revocable or irrevocable, depending on how much control the trust founder wishes to retain over the assets.
Special trusts are subdivided into two categories: Type A, which is designed for beneficiaries with disabilities who require financial support, and Type B, typically used for estate planning and lasts up to 20 years after the creator’s death.
Charitable trusts are set up to support religious, educational, or other charitable activities, offering tax benefits to encourage philanthropy.
Business trusts are created to hold assets for business purposes, providing asset protection and aiding in business continuity.
Family trusts are utilised to protect family assets and manage the distribution of wealth across generations. Each type of trust serves distinct purposes and offers specific benefits, making it crucial to choose the right one based on individual or business needs.
WHAT ARE THE BENEFITS OF SETTING UP A TRUST?
Setting up a trust in South Africa offers numerous benefits, primarily revolving around enhanced control, asset protection, and potential tax advantages. Trusts allow for the precise management of one’s assets both during their lifetime and after their passing, ensuring that assets are distributed to beneficiaries according to clearly defined terms. This is especially beneficial in safeguarding the interests of minors or dependents with special needs. Trusts also provide a degree of protection against creditors and legal judgments, as the assets held within a trust are generally not considered personal property of the beneficiaries. Furthermore, certain types of trusts, such as charitable trusts, can offer significant tax reliefs which serve to reduce the overall tax burden on the estate. By mitigating risks and providing financial security, trusts are an essential tool in comprehensive estate planning and wealth management
WHAT ARE THE LEGAL REQUIREMENTS AND PROCEDURES FOR SETTING UP A TRUST IN SOUTH AFRICA?
Founder/Settlor: You need a founder or settlor who establishes the trust and transfers assets into it. The settlor must be legally competent and have the intention to create the trust.
Trustees: A minimum of two trustees are required, and they must be natural persons or juristic entities such as a company or a close corporation. At least one trustee should be a South African resident or a company incorporated in South Africa.
Beneficiaries: You must identify the beneficiaries who will benefit from the trust. Beneficiaries can include individuals, organizations, or a class of persons. It’s important to clearly define the rights and entitlements of the beneficiaries.
Trust Deed: You need to draft a trust deed, which is a legal document outlining the terms and conditions of the trust. The trust deed should include the trust’s objectives, the powers and duties of the trustees, the rights of the beneficiaries, and any other relevant provisions.
Assets: The settlor must transfer assets into the trust, which may include cash, investments, immovable property, or other valuable assets. It’s essential to ensure that the transfer of assets is legally valid and compliant with relevant regulations.
Registration: Although not mandatory, it is recommended to register the trust with the Master of the High Court in the jurisdiction where the trust’s main administration will occur. Registration provides certain administrative benefits and legal recognition.
Tax Considerations: Consult with our qualified tax professionals to understand the tax implications of establishing a family trust. There may be tax obligations, such as income tax, capital gains tax, and donations tax, which need to be addressed.
Compliance and Reporting: As a trustee, you have fiduciary duties and must comply with various legal requirements. This includes maintaining proper accounting records, submitting annual financial statements, and fulfilling tax obligations.
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PM Attorneys boast extensive experience, knowledge and years in practice, making us the preferred legal partner in South African Law. Contact us for professional, expert advice and practical legal resolutions to your wills, deceased estates and trust matters.
