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Trust Administrations – The Tax Shop

The Tax Shop’s Advice on Trust Setup and Administrations in South Africa

Trust administrations and setting up of trusts are important parts of estate planning as provided by The Tax Shop. However, before choosing a trust and deciding to handle the administration thereof without the help of experts it is important to learn more about the basics of trusts.

What is a Trust?

It is a legal instrument where the founder transfers assets, including properties to the trust under management of trustees for the protection of such assets to the benefit of appointed parties. The persons receiving benefit are known as beneficiaries while the people who manage the trust are known as the trustees. The trustees and beneficiaries can be the same persons and a trustee can also be a company.

What is Important about Control?

Note that there must be a clear distinction between the ownership of assets and the enjoyment of such assets. Though as mentioned earlier, a trustee can also be one of the beneficiaries, but there cannot only be one trustee who is also the only beneficiary.

Which Act Regulates Trust Administrations?

The Trust Property Control Act governs all aspects of trust administration – The Tax Shop ensures full compliance with all aspects of trust administration on behalf of clients.

Why Transfer Assets to a Trust?

A trust is an excellent estate planning vehicle, because it is not a person that can pass away. As such, it has continuity and because it is not a natural person and thus subject to death, it is not subject to expenses such as executor fees or estate duties. However, it should be noted that during the lifetime of the trust the normal legalities such as Capital Gains Tax and Income Tax are still applicable also when a trust is terminated.

Estate duty savings is perhaps one of the most important reasons for transferring assets to a trust since these assets don’t form part of the original founder’s estate. Consequently, the assets will grow in the trust. Beneficiaries can still receive benefits after the founder has died. This is especially advantageous if you are concerned that your dependants will not have access to income if you pass away, because the assets in your estate will be frozen until the windup of the estate has been completed. As such, they will still receive their income during the mentioned period.

It is possible to split the tax payable income between the beneficiaries who are on a lower tax rate scale and thereby save on tax payments. However, it is essential to understand that a trust cannot be established and administered for the purpose of avoiding taxes.

What are the Disadvantages Related to a Trust?

The founders lose control over their assets as such assets form part of the trust and are managed by the board of trustees. The founders don’t own the assets and the only way to still have control over the assets to the benefits of beneficiaries is to become one of the beneficiaries. Note that the founders can be outvoted on a decision by other trustees and it is thus important to select trustworthy trustees. The founders don’t have any veto rights and can thus end up in a situation where the assets are used or managed in a way that they didn’t intend.

The cost of setting up and administering the trust must also be considered. There are trustee’s fees, trust registration costs, and auditing fees that must be paid in addition to applicable taxes. Also note that trustees must meet at least once annually and must be active in the management of the trust – the lack of participation can lead to legal penalties.

How Many Trustees Must Be Appointed?

Though the law does not stipulate how many trustees must manage the trust, it is safe to say that one person cannot be the founder, sole trustee and sole beneficiary. For reasons such as these, it is important to gain expertise from The Tax Shop regarding trust administrations to ensure full compliance with legal requirements. The general rule of thumb is to appoint an uneven number of trustees to avoid situations where the trustees cannot reach a decision regarding management of assets because the vote is equal against and for a decision.