INTERVIVOS DISCRETIONARY TRUSTS IN SOUTH AFRICA

WHAT IS AN INTERVIVOS TRUST?

An intervivos trust (also known as a living trust) is a legal entity that is created during a person’s lifetime. Unlike a testamentary trust, which takes effect upon the death of the trust’s creator (the “settlor”), an intervivos trust becomes operational as soon as it is established and funded. This type of trust allows individuals to manage their assets while they are still alive and can be used to provide for beneficiaries, manage wealth, or protect assets. The main objective is often to avoid the lengthy and costly process of probate upon the death of the settlor.

WHAT IS A DISCRETIONARY TRUST?

A discretionary trust is a specific type of trust where the trustee has the discretion to decide how to distribute trust assets among beneficiaries. In a discretionary trust, the trustee does not have a fixed obligation to distribute the trust income or capital in predetermined amounts, but rather exercises discretion based on the needs of the beneficiaries and any other guiding provisions in the trust deed. The beneficiaries, although named in the trust, do not have an absolute right to receive any benefits unless the trustee decides to distribute them.

• The Income Tax Act, 1962: Trusts in South Africa are subject to taxation under this Act. The tax treatment of trust income can vary, and the law distinguishes between various types of trusts (e.g., discretionary vs. vested).
• The Wills Act, 1965 (in cases where an intervivos trust is integrated with a testamentary element): This Act governs how a will should be executed and can affect the operation of a trust if linked to a will.

What Are the Requirements of a Valid Intervivos Discretionary Trust?

For an intervivos discretionary trust to be legally valid in South Africa, certain requirements must be met:

• The Trust Must Be Created in Writing: The trust must be formalized through a trust deed (written document) that clearly outlines the terms and conditions of the trust, including the powers of the trustee, the rights of the beneficiaries, and the purpose of the trust.
• Certainty of Objects: While a discretionary trust allows the trustee discretion, there must be enough clarity regarding who the potential beneficiaries are, even if specific distributions are not predetermined.
• Capacity of the Settlor: The person creating the trust must be mentally competent and legally able to enter into agreements.
• Proper Trust Administration: The trust must be administered by appointed trustees according to the stipulations in the trust deed, in line with South African trust law.
• Transfer of Assets: The settlor must transfer assets into the trust. This could include properties, money, or other assets that will be managed by the trustee for the benefit of the beneficiaries.

What Documents Are Required in the Registration of Intervivos Discretionary Trusts?

When registering an intervivos discretionary trust in South Africa, several key documents must be prepared and submitted. These include:

• The Trust Deed: This is the foundational document that outlines the terms of the trust, the settlor’s intent, the trustees’ powers, and the rights of the beneficiaries.
• Identity Documents: Valid identity documents of the settlor, trustees, and beneficiaries must be provided.
• Proof of Residence: Proof of the physical address of the trustees and the settlor, such as utility bills or bank statements.
• Letter of Authority: This is a document issued by the Master of the High Court in South Africa, which authorizes the trustees to act on behalf of the trust. This letter is required for the administration of the trust’s assets.
• Tax Registration: The trust must be registered with the South African Revenue Service (SARS) for tax purposes, and a tax reference number is required.

Consult with Trust Specialists in South Africa

Whether you are looking to create a trust to provide for family members or to manage significant assets, understanding the legal requirements and processes involved is essential. At Burger Huyser Attorneys, we can guide you through the complexities of creating and managing trusts, ensuring that all legal and regulatory requirements are met. If you need assistance with setting up an intervivos discretionary trust or have any questions about any other type of trust options, please contact us today.