Key points to note about running a Trust

This is the Part 2 of the series of newsletters that I am writing about Trusts. The first newsletter…/ was all about Parties to a Trust. In this newsletter, I want to highlight the key points about how Trusts are run so that you have as much information as you need to make an informed decision as you consider registering a Trust. So while Mpho’s question is relatively simple, care must be taken in advising her and she must have a good understanding of how trusts are run before she rushes ahead to register a Trust, should she decide that the Trust is the best way to protect her assets from a potential business failure
Key points to consider a Trust
The most important thing to consider is whether the founder/donor is willing to relinquish direct control over assets transferred to the trust. If this is not the main objective, a trust can be seen as a “front” (sham) and the protection and planning opportunities afforded by a trust, could be lost. Another important factor is how to get any growth assets from a personal estate to a trust.
Other considerations to a Trust are:

  1. Does the Trust fit into the overall estate plan?
  2. A Trust should not be primarily used to mitigate paying taxes
  3. Does the benefit of the trust justify the costs and administration involved in keeping the trust compliant
  4. Whether to appoint an independent trustee to ensure the trust is properly administrated
  5. Loans made by individuals and companies to the trust

Who is the founder? The Founder puts assets into a Trust for the benefit of kids and spouse. SARS can decide in whose hands it is taxed?
The Donor will be taxed where income accrues to:

  • 7 ( 2 ) – spouse of donor.
  • 7 ( 3 ) & ( 4 ) – child of donor.
  • 7 ( 5 ) – conditional vesting  – including  discretionary powers of trustee.
  • 7 ( 6 ) – donor retains revoking right.
  • 7 ( 7 ) – donor may re-gain ownership.
  • 7 ( 8 ) – non – resident.   

Methods of Transferring assets into a trust

  • Assets can be sold to a Trust.

Assets can be sold to the trust at fair market value against a loan account. The sale is at fair market value, to avoid paying additional donations tax.  Such sale could also attract capital gain tax.
If Mpho decides to sell her home to a Trust, it means that the Trust will now owe Mpho or

  • Assets can be donated to a Trust. If assets are donated to a Trust, the donor/founder will have to pay Donations Tax which is currently 20% of the value of the donated assets (Donations tax Is between 20% and 25% – subject to the R100, 000 allowable annual donation) changed in 1 March 2018, accumulative donation above R30 mil taxed at 25%
  • If a Trust has money then the Trust can buy assets in it’s name   – A Trust is a legal entity and can engage in its own buying and selling
  • A person can bequest an asset to a Trust through a Will – Testamentary disposal

Key points /compliance to note about running a Trust

  1. The trust must appoint an auditor
  2. The trust must be registered for tax purposes
  3. Resolutions taken by the Trust must be put in writing
  4. The trust must hold an annual general meeting

The trust can have some or all of the following assets(possible assets to consider in a Trust)

  • Share portfolio
  • Cash & Investments
  • Property portfolio
  • Company shares

I wish to thank Adv Anneke le Roux for her contribution to this newsletter. DISCLAIMER: Note this is general information. If you are wondering whether you should register a Trust or not, you can contact us to consult and we can also assist you with the drafting and registration of your trust.

Share this knowledge with your loved ones