SPECIAL TRUSTS

A special trust is a South African trust that enjoys more favourable income tax treatment than an ordinary trust under section 1 of the Income Tax Act 58 of 1962, and that is established — by will or during the founder’s lifetime — solely for the benefit of a qualifying beneficiary, namely a person with a disability (as defined in the Act) or a minor child whose parent is deceased. From 1 March 2024, the previously separate Type A and Type B special-trust categories were consolidated into a single “special trust” definition under the Taxation Laws Amendment Act; the core tax advantage — that amounts distributed to or used for the qualifying beneficiary are taxed in the beneficiary’s hands at their marginal rate rather than at the 45% flat trust rate — has been retained. A special trust must still be created by a valid trust deed and registered with the Master of the High Court under the Trust Property Control Act 57 of 1988, with Letters of Authority issued to the trustees before the trust can act.

What “Special Trust” Now Means in South African Law

The current definition is the single “special trust” definition in section 1 of the Income Tax Act 58 of 1962, as amended by the Taxation Laws Amendment Act; it took effect for years of assessment commencing on or after 1 March 2024. It replaced the previous Type A (beneficiary with a disability) and Type B (minor child of deceased parent) categories with one consolidated definition.

A special trust is in substance a trust, other than an ordinary trust, that is established solely for the benefit of a qualifying beneficiary as defined in the Act. The “sole-purpose” / “sole-beneficiary” test is the operative test — a trust that includes any non-qualifying beneficiary on its face falls outside the special-trust regime. Schedule 6 of the Income Tax Act contains the transitional provisions that govern how existing Type A and Type B trusts convert to the new single category.

Who Qualifies as a Beneficiary Under the New Definition

Only two categories of beneficiary qualify under the section 1 definition:

• Person with a disability — a person who has a disability as defined in the Income Tax Act: a moderate to severe limitation in the ability to perform daily life activities because of a physical, sensory, communication, intellectual, or mental impairment, expected to last more than a year.
• Minor child of a deceased parent — a child under 18 whose parent is deceased at the time the trust is established (or whose surviving parent subsequently dies while the trust is in operation).

Trusts established for any other purpose — asset protection, estate planning for adult beneficiaries, business succession, or charitable giving — do not qualify as special trusts, even if drafted to look similar. A trust that ceases to meet the qualifying-beneficiary test loses its special-tax status and is treated as an ordinary trust from the date the test fails.

Why Use a Special Trust: The Tax Advantage

The tax advantage of a special trust sits in how distributions are taxed, not in the trust-level rate itself. Ordinary trusts are taxed at a flat 45% on net income retained in the trust. A special trust is taxed on a sliding scale similar to that applied to natural persons, and amounts distributed to or used for the qualifying beneficiary are taxed in the beneficiary’s hands at their marginal rate — which is usually lower than 45% and may be zero where a minor’s income falls below the annual tax threshold.

Three further advantages flow from this classification:

1. Section 7 attribution does not bite in the same way. The anti-avoidance rules in section 7 of the Income Tax Act that typically attribute income back to the donor or founder of an ordinary trust do not apply to a special trust in the same manner, removing the typical attribution “loop.”
2. Concessionary capital gains treatment. The annual capital gains exclusion and the lower inclusion rate for gains on disposal of assets apply in the qualifying beneficiary’s hands, rather than at the trust level.
3. Interaction with SASSA grants. Where structured correctly, a special trust can provide lifetime care for a vulnerable beneficiary without disqualifying that beneficiary from means-tested social grants such as the SASSA disability grant, care-dependency grant, or child support grant. This is a substantive interaction that requires careful drafting.

The firm’s Trusts practice handles these interactions — between the section 1 definition, the Master’s registration, and the SASSA means test — across its Gauteng branches, with the Pretoria (Menlyn) office taking Pretoria-seated Master’s filings and the Linden head office handling Johannesburg-seated filings.

Setting Up a Special Trust

Five steps are required to bring a special trust into legal operation:

1. Trust deed. Drafted by an attorney familiar with the section 1 definition and the Trust Property Control Act — must satisfy the sole-purpose / sole-qualifying-beneficiary test on its face.
2. Trustees. Appointed in the deed. The Master of the High Court will require particulars of each trustee and may require security to be lodged before issuing the Letters of Authority.
3. Registration with the Master of the High Court. Lodged under section 4 of the Trust Property Control Act 57 of 1988 in the province where the trust property is situated at the time of registration.
4. Letters of Authority. Issued by the Master after registration. Until the Letters of Authority issue, the trust cannot legally open a bank account, hold property, or enter into contracts.
5. Tax registration with SARS. Registered separately as a “special trust” on the SARS IT register — a generic “trust” registration will not attract the tax-favoured treatment. Trustees must apply at a SARS branch for the special-trust classification.

FICA compliance is layered on top of these steps: trustees must satisfy the bank and Master’s FICA requirements before the trust can become fully operational.

Administration Once Registered

Once the trust is registered and Letters of Authority have issued, ongoing administration is governed by the trust deed, the Trust Property Control Act, and SARS’s reporting rules. Trustees must keep proper records of all receipts, payments, and distributions, and prepare annual financial statements. An annual income tax return (IT3TR) must be filed with SARS. Distributions to the qualifying beneficiary must be documented and traceable — SARS reviews whether the trust actually operated as a special trust (i.e. for the qualifying beneficiary’s benefit) in practice, not only on paper. Changes to trustees, the trust deed, or the qualifying beneficiary’s status must be notified to the Master and, where relevant, to SARS.

Special Trust vs Ordinary Trust: A Side-by-Side Comparison

Feature	Special Trust	Ordinary Trust
Sole beneficiary requirement	Sole beneficiary must be a person with a disability or a minor child of a deceased parent	No such restriction; can have any range of beneficiaries
Tax rate on retained income	Sliding scale similar to natural persons	45% flat trust rate
Tax treatment of distributions to beneficiary	Taxed in the beneficiary’s hands at their marginal rate	Taxed in the beneficiary’s hands at their marginal rate
Section 7 attribution	Does not apply to the same extent	Can apply to attribute income back to the donor / founder
Primary purpose	Care and maintenance of a vulnerable beneficiary	Estate planning, asset protection, business succession, charitable giving
Typical vehicle	Usually testamentary (in a will) but can be inter vivos	Either testamentary or inter vivos

Common Uses and Common Pitfalls

The principal use case is estate planning for a child with a disability: the trust provides lifetime care without affecting the beneficiary’s means-tested grants. The second principal use case is estate planning for orphaned grandchildren or other minors — funds are held by the trust and applied for the minor’s education, maintenance, and similar needs until the minor reaches the age at which the trust terminates.

Four pitfalls regularly arise in practice:

• Drafting the trust deed too widely. Including non-qualifying beneficiaries, or allowing the trustees to apply capital for non-qualifying persons, can disqualify the trust from special status.
• Failing to register with SARS as a special trust. If SARS registers the trust as a generic trust, the tax-favoured treatment is lost. Trustees must apply at a SARS branch for the special-trust classification.
• Using the trust for anyone other than the qualifying beneficiary. Even a temporary application of capital for a non-qualifying person can be challenged by SARS.
• Pre-2024 trust deeds drafted as Type A or Type B. These need to be reviewed against the new single section 1 definition; a transitional catch-up may be required under Schedule 6 of the Income Tax Act.

When to Engage a Trusts Attorney

Special trusts touch income tax, deceased estate administration, and the Master’s registration regime simultaneously — the cost of getting the trust deed wrong is the loss of the tax advantage. A trusts attorney should be engaged to:

• Draft a new trust deed that satisfies the section 1 sole-purpose test.
• Review an existing Type A or Type B trust deed against the post-2024 single definition.
• Register the trust with the Master of the High Court and apply to SARS for the special-trust classification on the IT register.
• Advise on the interaction between the trust and the beneficiary’s social-grant entitlements.
• Resolve a SARS dispute about the trust’s classification.

Burger Huyser Attorneys runs its trust formation, cancellation, and administration work across its Gauteng branches through the Trusts practice area, with Pretoria-seated Master’s filings handled by the Pretoria (Menlyn) office and Johannesburg-seated filings handled by the Linden head office and the Bedfordview and Sandton branches.

Frequently Asked Questions

What is the difference between a Type A and Type B special trust?

Under the regime that applied before 1 March 2024, a Type A special trust was one established solely for the benefit of a person with a disability, and a Type B special trust was one established solely for the benefit of a minor whose parent was deceased. The Taxation Laws Amendment Act consolidated these two categories into a single “special trust” definition under section 1 of the Income Tax Act 58 of 1962, effective for years of assessment commencing on or after 1 March 2024. Existing Type A and Type B trusts are subject to the transitional provisions in Schedule 6 of the Act.

How does a special trust differ from an ordinary trust for tax purposes?

Both an ordinary trust and a special trust are taxed at a flat 45% on income retained in the trust, but amounts distributed to or used for the qualifying beneficiary of a special trust are taxed in the beneficiary’s hands at their marginal rate, and the section 7 anti-avoidance attribution rules do not apply to a special trust in the same way. For an ordinary trust the same marginal-rate treatment of distributions applies, but the section 7 attribution rules can apply to the donor or founder’s transactions.

Does a special trust still pay 45% tax?

Yes — a special trust pays 45% on net income retained in the trust, the same as an ordinary trust. The tax advantage is in how distributions to the qualifying beneficiary are taxed: in the beneficiary’s hands at their marginal rate, which is usually lower than 45%, and which may be zero for a minor whose income falls below the annual tax threshold.

What is the role of the Master of the High Court in registering a special trust?

The Master of the High Court registers the trust under the Trust Property Control Act 57 of 1988, receives any security required from the trustees, and issues the Letters of Authority that authorise the trustees to act. Until the Letters of Authority issue, the trust cannot open a bank account, hold property, or enter contracts. SARS registers the trust separately for income tax purposes, and the SARS registration must identify the trust as a “special trust” for the tax-favoured treatment to apply.

Can a special trust be set up during the founder’s lifetime, or only in a will?

Either. A special trust can be established inter vivos (during the founder’s lifetime) by signing a trust deed and registering it with the Master of the High Court, or it can be established testamentary (in the founder’s will), in which case the trust springs into existence on the founder’s death and is then registered with the Master. The qualifying-beneficiary test applies identically to both.

Will a special trust affect the beneficiary’s SASSA grants?

It can, depending on how the trust is structured and how the distributions are applied. The trust must be drafted and operated so that distributions do not disqualify the beneficiary from means-tested social grants (such as the disability grant, care-dependency grant, or child support grant). This is a substantive interaction that requires advice from a trusts attorney and, where relevant, a financial adviser familiar with the SASSA means test.

Burger Huyser Attorneys’ Trusts practice handles the formation, registration, and administration of special trusts, including the review of pre-2024 Type A and Type B trust deeds against the consolidated section 1 definition of the Income Tax Act 58 of 1962. The firm runs this work through its Pretoria (Menlyn) office (012 471 5700) for Pretoria-seated Master’s office filings, and through its Linden head office (011 888 0246) and the Bedfordview (011 201 7190) and Sandton (011 253 3080) branches for Johannesburg-seated filings. Initial enquiries are taken at the head office and routed to the appropriate branch.