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Charne Olivier

Trust Structures

In South Africa, trusts are a popular legal arrangement used for estate planning, asset protection, and wealth management. A trust is a legal entity that holds assets for the benefit of one or more beneficiaries, managed by one or more trustees. There are several types of trusts available in South Africa, each serving different purposes and catering to specific needs. In this series, we will explore the various types of trusts in South Africa, delve into how they work and consider what benefits and considerations need to be taken before starting a trust. We will also start the discussion by taking a closer look at some crucial things to understand when we talk about trusts.  

Role Players in a Trust 

Trust Structures

  • Founder: The person who establishes the trust by transferring assets or property to the trust. The founder defines the trust’s objectives, beneficiaries, and terms in the trust deed, which is a legal document that governs the trust’s operations. The founder may also specify how the trust’s assets should be managed and distributed to beneficiaries. 
  • Trustee(s): They are responsible for managing the trust’s assets and ensuring that the trust’s objectives are carried out according to the terms set out in the trust deed. In South Africa, a trust must have at least one trustee, although multiple trustees are often appointed to share the responsibilities. Trustees have a fiduciary duty to act in the best interests of the beneficiaries and to manage the trust with due care and diligence. They are responsible for making investment decisions, accounting for income and expenses, and distributing assets to beneficiaries as per the trust’s terms. Although any adult can be a trustee, it is advised to choose a trustee who has experience or skills in managing assets. It is further important to consider what relationship the trustees have with the beneficiaries as a conflict of interest may interfere with the trustee’s ability to manage the assets according to their fiduciary duty. 

Trust Structures

  • Beneficiaries: Beneficiaries are the individuals or entities who are entitled to benefit from the trust and its assets. The trust deed outlines the specific beneficiaries and may define the conditions under which they will receive distributions from the trust. Beneficiaries may include family members, charitable organisations, or other designated beneficiaries as specified by the founder in the trust deed. 

Basic Tax Considerations Regarding Trusts 

There are several tax considerations that both the trust and its beneficiaries need to be aware of. Firstly, it is important to understand that a trust is a separate legal entity for tax purposes and is subject to income tax on its taxable income at the applicable trust income tax rate. The taxable income of the trust includes all income generated by the trust’s assets, such as interest, dividends, rental income, and capital gains. The trust is required to submit an annual income tax return to SARS, declaring all income, expenses, and any distributions made to beneficiaries. 

financial planning

When any beneficiaries have a vested right to an income and/or the capital of the trust, such income and/or capital will be taxed in their hands. One advantage of such a distribution through a trust, is that the greater the number of beneficiaries in whom trust income and/or capital can vest, the greater the spread of income and/or capital on which income tax will be paid.  

There are slight distinctions between how capital and income distributions to beneficiaries are treated, and therefore, it is important to understand who you are if you are a beneficiary. It is also important to understand that in the case of discretionary trusts, the trustees have the discretion to decide how and if the income and/or capital will be distributed, meaning that beneficiaries don’t have vested rights. 

Trusts are valuable tools for achieving financial and personal objectives, providing a secure and effective way to manage assets, preserve wealth, and create a lasting legacy for generations to come. Now that we understand some basics regarding how trusts work, we will unpack why people use trust structures as a financial management tool and what various structures are available in South Africa in the next two articles.   

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Charne Olivier - Articles provider for My Wealth Investment

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Charne Olivier - Articles provider for My Wealth Investment

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