Understanding trust registrations – the procedure, purpose, advantages and disadvantages – will help you to determine whether or not it will be relevant and beneficial for your specific purpose to register a trust. It is essential to be familiar with the regulations for the procedure to register a trust as stipulated in the Trust Property Control Act.
What is a Trust?
It is a legal instrument for control over an asset, such as property, which is transferred to a trustee that can be a person or an organisation to benefit a party who is called the beneficiary.
Types of Trusts
Two types of trusts are recognised in South Africa:
The inter-vivos trust is the trust that’s registered while a person is still living for the purpose of transferring the property to the trust and having it managed to the benefit of a living person/s. The testamentary trust is one that comes into being as part of a deceased estate.
The Procedure for Registering an Inter-Vivos Trust
The trust application is submitted to the Master who then authorises the nominated trustee/s to take control of the trust‘s administration. For such to be approved it is necessary to submit the original trust deed or a certified copy of the trust deed to the Master in addition to the payment of the registration fee for establishment of a new trust. The Master may require the submission of the bond of security in addition to the trusteeship acceptance and the auditor acceptance application documents.
Note that one can only act as trustee if awarded the authority for such by the Master. It is essential to keep financial records as the Master may request such if there is an issue with the administration of the trust. In the case of a testamentary trust the last will of the person becomes the trust document.
The trust is automatically created in relation to a deceased person’s will and therefore cannot be registered unless the person is dead and only comes into existence when the person dies. There are thus no registration costs payable until the testamentary trust comes into being.
The testator sets up a will to protect the assets forming part of his/her estate to ensure that the named beneficiaries will benefit from the assets or income from distribution of such. The trust can also limit the management of the said assets and acts to ensure protection against reckless spending by beneficiaries.
The trustees are the persons appointed to administer the trust. It is essential that the trustee/s be of sound mind and capable of administering the trust. Since it is a complicated process, the trustee/s may be required to appoint a person or organisation with the necessary expertise to assist in this process. Note that the Act doesn’t stipulate how many trustees must be appointed and a trust can thus be administered by one or more persons.
There are three types of beneficiaries:
Capital refers to beneficiaries who are selected by the trustees to gain benefit from distribution of the capital assets held in trust. The income beneficiaries are beneficiaries that are selected by the trustees as listed in the title deed of the trust to benefit from income distribution from assets held in trust. The contingent beneficiaries are named in the trust deed to ensure that the trust doesn’t fail if the capital or the income beneficiaries are not found.
The Advantages of a Trust
With the procedure for registering and administering trusts being complicated one may ask whether there are benefits for registration or creation of such. Indeed, the answer is a resounding yes!
Trusts are established for protection of assets that belong to minors and thus protect the income and management of such on behalf of the minors. Trusts also protect any assets within the trusts against creditors and are used for estate planning and minimising estate duty costs. Trusts can furthermore be used for tax planning.
The disadvantages include the expenses associated with the creation and management thereof and also the ownership control loss over assets in the trusts, as well as the high rate of taxation to which trusts are subjected.
Our professional accountants and tax consultants are able to assist with tax registrations and the procedures for administering trusts.