BG102 Trusts Explained
Taxco Business Guide
Structuring your Business
The objective of this business guide is to provide a brief overview of the creation, use and taxation of trusts in South Africa and to explain how Taxco can assist with the planning, compilation, registration thereof and our appointment as independent trustee in securing you and your beneficiaries’ financial future by creating your own wealth-protection plan.
The trust is a useful, versatile and popular tool in estate planning. It limits the liability of estate duty and provides some protection from creditors as the donated property is vested in the Trust.
Trusts can be created by a will or by an agreement between the donor and the trustees. The Trust Deed sets out how the property is to be administered or disposed of by the trustees. Ownership of the property passes from the donor to the trust which is then administered for the benefit of another person or class of persons (known as beneficiaries). There can be income and capital beneficiaries. Income beneficiaries are entitled to income from the Trust whereas capital beneficiaries are entitled to the capital. In many cases, the beneficiaries would be both income and capital beneficiaries.
1. A Trust Deed is drawn up setting out how the trust property is to be dealt with. (The Trust Deed is signed by both the donor and the trustees.)
2. The Trust is registered with the Master's office which will issue a reference number for the Trust.
3. The Master will issue Letter of Authority in favour of the trustees, authorising them to act on behalf of the Trust.
4. The Trust is also registered with the Receiver of Revenue and, in most cases, the trust will thereafter be required to furnish not only annual returns in respect of income, but also provisional tax returns, should it receive income.
These persons should be responsible people whom you can trust. They are subject to control and direction of the Master, but cannot easily be removed from office. The number of trustees depends on the circumstances. If a trustee is a professional person, you must expect to be charged a professional fee for his /her services. All new trusts require that an independent person must be appointed as additional trustee, where the trustees and beneficiaries are related.
Donations to the trust
Most trusts are set up by a donation of a small sum in cash, usually R100.00. Thereafter, donations can readily be made to the Trust by the original donor, but is important to note that any donations made in excess of the annual exemption amount in any tax year, are subject to tax in hands of the donor at the rate of 20% of the value of such donation.
If an income beneficiary of the Trust is a child of the donor and such income is derived from the donation, that income can, and will, be taxed in the hands of the donor and not in the hands of the beneficiary. If income is taxed in the hands of the beneficiary, it will be taxed at the marginal rate which, in case of a minor, could be very low.
Rates of tax
In most cases, a Trust will provide for payments to beneficiaries only being made out of income. Such income distributed to beneficiaries is not taxable in the hands of the Trust, but is taxable in the hands of the beneficiary. Any income which is not distributed or used up in the administration of the Trust is subject to tax at 40%. Where the Trust makes a capital gain upon the sale of an asset, two thirds of the capital gain is taxable as income in the hands of the Trust at the rate of 40%. Following the conduit principle, income keeps its nature when distributed to a beneficiary e.g. if the trust receives interest and distributes it, the beneficiary receives interest income, which could be subject to interest tax exemptions.
How can Taxco help?
The above is by no way intended to be a comprehensive exposition of law applicable to trusts, but is merely a brief overview to inform you of your rights. Should you decide to set up a trust, you are advised to consult one of our professional accountants or associated attorneys in this regard, who can take your particular circumstances into account, prior to setting up the trust.
Your own Family Wealth Protection Plan!
At Taxco we further have experienced independent trustees and have formed many trusts for our client’s business and for family protection purposes. We have further designed a unique BEE Trust for HDI clients who require maximum tender points. We take your complete estate into consideration and combined with your assets, business and last will and testament, we provide a complete family wealth protection plan to not only protect your assets, but to manage, keep and distribute your assets in a cost effective and tax efficient manner, ensuring that your legacy goes to your loved ones you intended.
For more details, contact us now to discuss how a trust can be made to work for your specific circumstances and how we can assist you with your very own family wealth protection plan.
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