What You Need To Know When Setting up a Trust
Trusts have become a crucial tool for estate planning, asset protection, and wealth management in South Africa. Whether you are looking to secure your family’s future, minimize estate taxes, or protect your assets from creditors, setting up a trust offers a range of potential advantages. However, before establishing a trust, it is essential to understand how trusts work within the South African legal framework, as well as the benefits they provide.
A trust is a legal arrangement where one party (the settlor) transfers ownership of assets to another party (the trustee), who then manages and administers the assets for the benefit of third parties (the beneficiaries). In South Africa, trusts are governed by the Trust Property Control Act, 1988, which outlines the responsibilities of trustees and provides a framework for how trusts are created, administered, and terminated.
Trusts can serve various purposes, such as protecting family wealth, providing for beneficiaries, and facilitating the smooth transfer of assets. They can be established either during a person’s lifetime (inter vivos trust) or as part of their will (testamentary trust).
The Requirements of a Trust Deed
Creation of a Trust
A trust is established through a trust deed, which is a legal document that sets out the terms and conditions of the trust. This document outlines important details such as:
- The Settlor: The person who creates the trust and transfers assets into it.
- The Trustee(s): The individuals or entities responsible for managing the assets within the trust according to the trust deed and the law.
- The Beneficiaries: The individuals or entities who will benefit from the trust’s assets, whether through income distributions or the eventual transfer of assets.
- The Purpose of the Trust: The objectives of the trust, such as protecting assets, supporting beneficiaries, or facilitating estate planning.
Once the trust deed is signed, the assets are transferred from the settlor’s name to the name of the trust. From that point on, the trust owns the assets, and the trustees are responsible for managing them.
The Role of Trustees
Trustees are the central figures in the administration of a trust. They hold a fiduciary responsibility to act in the best interests of the beneficiaries and manage the trust’s assets according to the trust deed. Trustees must exercise due care, avoid conflicts of interest, and ensure that they comply with the terms set out in the trust deed and South African law.
Trustees are also responsible for:
- Investing and managing trust assets: Trustees must manage the assets prudently, in a way that aligns with the trust’s objectives.
- Distributing assets: Trustees will distribute income or assets to beneficiaries in accordance with the instructions outlined in the trust deed.
- Tax compliance: Trustees must ensure that the trust adheres to all tax requirements, including filing tax returns and paying taxes on income generated by the trust’s assets.
Beneficiaries and Benefits
Beneficiaries are the individuals or entities designated to receive benefits from the trust. This may include income generated by the trust (such as interest, dividends, or rental income) or, in some cases, the actual assets themselves.
The trust deed specifies how and when beneficiaries will receive their benefits. This could be at certain intervals, upon reaching specific milestones, or as needed. By having clear instructions in the trust deed, the settlor can control how the trust’s assets are used and ensure they are distributed according to their wishes.
What Are the Benefits of Having a Trust in South Africa?
- Asset Protection
One of the key reasons individuals and businesses establish trusts is for asset protection. When assets are transferred into a trust, they are no longer considered part of the settlor’s personal estate. As a result, the assets are protected from creditors, lawsuits, and other legal claims. This is especially useful for business owners or individuals with significant assets, as it can safeguard wealth from being seized due to financial difficulties or legal disputes.
- Tax Efficiency and Income Splitting
Trusts can provide potential tax benefits through income splitting. In South Africa, trusts are taxed at a flat rate of 45% on income above R1.73 million (for the 2024/2025 tax year). However, if the trust distributes income to beneficiaries, the income may be taxed at the individual beneficiaries’ tax rates, which can be lower than the trust’s tax rate.
This income-splitting strategy allows individuals in lower tax brackets to receive income from the trust, reducing the overall tax burden. This is particularly beneficial when the trust generates substantial income, such as from investments or rental properties.
- Estate Planning and Reduction of Estate Duty
A trust is an effective estate planning tool in South Africa, especially for those with significant wealth. When assets are placed into a trust, they are no longer part of the individual’s estate. This helps to reduce the value of the estate and may reduce estate duty (inheritance tax), which is levied on the value of the estate upon death.
Additionally, assets in a trust can be passed on to beneficiaries without the need for probate, which can be a time-consuming and costly process. The trust ensures that assets are distributed in accordance with the settlor’s wishes and can bypass the complexities of a traditional will.
- Control Over Distribution of Assets
One of the most significant advantages of a trust is the level of control it offers over how assets are distributed. The settlor can dictate specific terms and conditions for how and when beneficiaries will receive their inheritance. For example, beneficiaries may only receive their inheritance upon reaching a certain age or achieving particular milestones, such as completing their education or becoming financially independent.
This allows the settlor to ensure that assets are distributed responsibly and prevents heirs from mismanaging their inheritance.
- Succession Planning and Family Harmony
A trust is an ideal tool for succession planning, particularly in family-owned businesses or multi-generational estates. By establishing a trust, the settlor can ensure a smooth transfer of assets to future generations without disputes or complications. Clear instructions in the trust deed can prevent disagreements over asset distribution and promote family harmony.
Trusts are also helpful in blended families, where the settlor may want to ensure fair treatment for all heirs, regardless of whether they are biological children or stepchildren.
- Avoiding the Delays and Costs of Probate
One of the major advantages of a trust is that it avoids the need for probate, the legal process that validates a will and distributes the estate. Probate can be time-consuming, costly, and subject to legal challenges, often delaying the transfer of assets to beneficiaries.
Since a trust operates independently of the probate process, assets can be distributed to beneficiaries quickly and efficiently, ensuring that the settlor’s intentions are carried out promptly.
At Burger Huyser Attorneys, we specialize in trust law and estate planning. Whether you’re looking to set up a family trust, establish a business trust, or need advice on managing an existing trust, our experienced legal team is here to guide you through the process and ensure that your trust works in the best interest of you and your beneficiaries.
Contact us today to learn more about how trusts can benefit you and your family and to receive personalised legal advice tailored to your needs.
Contact Burger Huyser Attorneys, and book a consultation.
To speak to one of our experienced attorneys in South Africa for immediate assistance, contact us on the numbers below:
Randburg call 061 516 6878; Roodepoort call 061 516 0091; Sandton call 064 555 3358;  Pretoria call 064 548 4838;
Centurion call 061 516 7117; Alberton call 061 515 4699; Bedfordview call 061 536 3223
DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE
