Deceased Estate Administration, Wills and Trusts

 

 

 

Generally, a trust can be amended, but the process can be complex and may require court approval, especially if beneficiaries' interests are affected. Termination usually occurs when the trust's purpose is fulfilled or after a specified period.

A will dictates how your assets are distributed after your death, while a trust allows for ongoing management of assets, even during your lifetime. Trusts can offer more flexibility and control over asset distribution than wills. 

The trust deed outlines how assets will be distributed after the founder's death. They may be distributed immediately, held for a specific period, or managed for the beneficiaries' benefit according to the trust's terms.   
 

The trust deed is the legal document that governs the trust. It outlines the terms and conditions, including the purpose of the trust, the beneficiaries, the trustees' powers and responsibilities, and how assets will be distributed. It's crucial for the trust's proper functioning. 

A trust is a legal arrangement where assets are held by a trustee for the benefit of beneficiaries.

Reasons for setting up a trust include asset protection, estate planning, minimizing estate duty, providing for beneficiaries (especially minors or those with disabilities), and ensuring smooth succession of assets.   
 

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Understanding Types of Trusts in South Africa

In South Africa, the term "Types of Trusts" refers to the various classifications based on how trusts are structured, their purpose, and their tax implications.  Essentially, trusts aren't a one-size-fits-all solution.  Instead, the legal framework allows for different types of trusts to be created, each designed to achieve specific goals. A trust is a legal arrangement where a person (the founder or settlor) transfers assets to another person or entity (the trustee) to manage for the benefit of specified individuals or entities (the beneficiaries).

Trust Classifications in South Africa

South African trust law offers a versatile framework for managing and protecting assets.  Broadly speaking, trusts can be categorized in several ways, depending on their structure, purpose, and tax implications. Understanding these different classifications is crucial for choosing the right trust to meet your specific needs.  At AUCAMP Attorneys, we provide expert guidance in navigating these complexities.

Key Types of Trusts in South Africa

To simplify understanding, we can classify trusts based on several characteristics:

1. Based on Creation & Control (Trust Property Control Act Classifications)

  • Ownership (or "Ordinary") Trusts:  The most common type. Here, you (the Founder/Settlor) transfer ownership of your assets to Trustees. Trustees then hold these assets in a fiduciary capacity (meaning they must act in the best interests of the trust) for the benefit of your chosen Beneficiaries.
  • Bewind Trusts:  Less common now.  In this structure, ownership of assets technically passes directly to the Beneficiaries, but the Trustees retain significant control over managing and administering those assets.
  • Inter Vivos Trusts (Living Trusts): Created during your lifetime.  These trusts are established through an agreement – a contract – between you (the Founder) and your chosen Trustees. They become operational immediately and are ideal for managing assets during your lifetime.
    • Discretionary Trusts (Inter Vivos Sub-type): Trustees have significant discretion on how much and when beneficiaries benefit. This offers flexibility to adapt to changing circumstances and is often used for asset protection and tax planning. The Founder provides guidelines, but Trustees make the final distribution decisions.
    • Vested Trusts (Inter Vivos Sub-type): Beneficiaries have a defined, immediate right to the income or assets specified in the trust deed. Trustees have less discretion and must distribute benefits as predetermined. This offers certainty for beneficiaries.
  • Testamentary Trusts (Will Trusts):  Established after your death through your Last Will and Testament.  They come into effect once your estate is being administered.  Often used to protect assets for minor children or beneficiaries who may need long-term financial management.

2. Based on Vesting of Benefits

  • Vesting Trusts (as described above under Inter Vivos) Benefits are predetermined and legally vested in beneficiaries.
  • Discretionary Trusts (as described above under Inter Vivos) Trustees have discretion over benefit allocation.
  • Hybrid Trusts The most common type in South Africa. These trusts blend elements of both vesting and discretionary trusts, offering a balance of flexibility and defined rights within a single trust structure. Your trust deed will outline both vested and contingent rights for beneficiaries.


3. Based on Specific Purpose/Application

Trusts can also be categorized by their intended purpose. Examples include:

  • Trading (Business) Trusts Used to conduct business activities within a trust structure.
  • Asset Protection Trusts Designed to shield assets from potential creditors.
  • Charitable Trusts Established for philanthropic purposes and benefiting the public or specific charitable causes.
  • Land Rehabilitation Trusts Used in mining and environmental sectors for long-term land restoration projects.
  • Share Incentive Scheme Trusts To manage and distribute shares to employees as part of incentive programs.
  • BEE Trusts Specifically designed to facilitate Broad-Based Black Economic Empowerment.
  • Collective Investment Scheme (CIS) Trusts Used in the financial services industry for collective investment schemes.
  • Special Trusts (See detailed explanation below for tax purposes)

4. Special Trusts (Tax Classification)

South African tax law recognizes "Special Trusts" which receive specific tax treatment. These fall into two categories:

  • Special (a) Trusts Created solely for the benefit of individuals with mental or physical disabilities (as legally defined) that prevent them from managing their own financial affairs.
  • Special (b) Trusts Testamentary Trusts created solely for the benefit of relatives of the deceased person who are alive on the date of death (including unborn children conceived at that time), and the youngest beneficiary is under 18 years old at the end of the tax year. These trusts are typically intended to support minor children after a parent's death.

Important Considerations

  • Overlapping Categories Remember, these classifications aren't mutually exclusive! A trust can be both an Inter Vivos Trust and a Discretionary Trust, or a Testamentary Trust and a Special (b) Trust.
  • Taxation Trusts are taxed entities. "Normal" trusts are taxed at a flat rate of 45%. However, qualifying Special Trusts (a) and (b) benefit from a more favorable tax treatment, taxed on a sliding scale similar to individual taxpayers. However, Special Trusts do not qualify for individual tax rebates. It's crucial to properly classify and disclose Special Trusts when filing tax returns to claim applicable benefits.
  • SARS Registration All trusts in South Africa must be registered with the South African Revenue Service (SARS).
  • Trustees as Representative Taxpayers Trustees are legally responsible for managing the trust's tax obligations.
  • Trust Income Taxation Trust income can be taxed in the hands of the:
    • Founder/Donor in certain specific circumstances.
    • Beneficiary, if the income is distributed to them.
    • Trust itself, if the income is retained wthin the trust.

Which Type of Trust is Right for You?

The "best" type of trust depends entirely on your individual circumstances, financial goals, and the needs of your intended beneficiaries.

  • For Flexibility and Control for Trustees Choose a Discretionary Trust.
  • For Guaranteed Benefits for Beneficiaries Opt for a Vested Trust.
  • For Lifetime Asset Management and Avoiding Probate An Inter Vivos (Living) Trust is suitable.
  • For Post-Death Estate Planning and Minor/Vulnerable Beneficiaries A Testamentary Trust is often the answer.
  • For Families with Disabled Dependents or Minor Children Post-Death Explore Special Trusts (Type A or B) for potential tax advantages and focused protection.

Let AUCAMP Attorneys Guide You Through Trust Establishment

Choosing and establishing the correct type of trust is a significant decision with long-term implications.  Our expert team at AUCAMP Attorneys can provide tailored advice to help you navigate these complexities, ensuring your trust structure effectively meets your unique needs and objectives. Contact us today for a consultation.