People have very mixed feelings about trusts. Some are skeptical due to not being clued-up and others think it is the greatest idea since online shopping.
I believe in educating yourself before jumping head first into a situation.
Here are some important notes regarding trusts in South Africa:
What on earth is it?
Trusts is a legal person that holds assets for the beneficiaries and is administered by the trustees.
So, let’s to say your family holiday home is rented out on Airbnb and your dad put’s it into a trust for you to get the rental income. Then he is the founder (he started the trust) and most likely the trustee (he administers the trust for you a.k.a deals with the tourists) and you are the beneficiary (because you get the income).
Trusts are mostly created to protect a person’s assets, if it be from divorce, bankruptcy or that very dodgy family member 😉 In South Africa you also get a type of trust called a Special trust that specifically helps to protect the assets of a disabled person.
Important-to-know technical information:
There are 3 types of trusts in South Africa:
- Ownership trusts – The trustees are the owners of the trust assets
- Bewind Trust – The beneficiaries are the owners of the trust assets
- Curatorship trust – The assets are controls on behalf of the beneficiaries who can’t do it themselves. For instance, being younger than 18.
Then, a trust may be created as an Inter Vivos or Mortis Causa trust:
- Inter Vivos or Living trust means the founder is alive. Think of your favorite charity trust. The legal documentation for this trust is a Trust deed.
- Mortis Causa or Testamentary trust is the most popular form of trusts in South Africa. This is created via a clause in a person’s will.
- Trustees may take compensation for their duties as stipulated in the deed or will.
- A trust can not be sued (unless otherwise stated) so the Trustees must take the responsibility.
It is important to determine who actually controls the asset, because that person will be liable for the tax. SARS calls it Anti-Avoidence Laws. This is to prevent people from misusing trusts. The tax can get very tricky so I suggest you appoint a trustworthy person to help you.
Don’t Let trusts make you lose your mind. Go out there and educate yourself.