Trusts

 

THE LAYMAN’S DEFINITION OF A TRUST:

A Trust is a fund which is set up by the “Settlor” or “Donor” over which the trustees take control on behalf of the beneficiaries appointed by the Settlor. The rules of the fund or trust are set out in a document called the “Trust Deed”.

Q: Who is the “Settlor” or “Donar”?

A: The “Settlor” or “Donar” is simply the person who sets up the trust fund and makes the rules. The rules must be in accordance with the trust property control act.

Q: What is the function of the trustees?

A: The trustees are, in layman’s terms, the managers of the trust. Their position is comparable to that of a member of a close corporation or a Director of a Company. They don’t own the trust assets, they simply have control over it and they have to manage it according to the rules stipulated in the Deed.

Q: What is the position of a beneficiary of a trust?

A: The Beneficiary is the person / persons who will benefit from the trust fund. The Donor normally appoints those who are near and dear to him as Beneficiaries.

Q: Must a trust open a bank account?

A: In terms of the Trust Property Control Act the trustees must, immediately upon registration of the trust open a bank account. My advice is to only open a bank account if the trust handles cash. If the trust only holds assets and no cash it is not in the interest of the trust to open a bank account because you will waste money on banking fees. I don’t think any court of law will frown upon this.

Q: Must I register my trust as a tax payer?

A: In deed. Even if the trust has no income and therefore no tax liability, it must be registered as a tax payer at SARS. Do not forget to send in your annual tax returns, even if it is a nil return!

Q: What is the role of the Master of the High Court in trusts?

A: The Master of the High Court is the Big Daddy of all insolvents, children, trusts, orphans, Insolvent estates and Deceased estates. In practical terms the Master of the High Court registers the trust and issues a registration number. The Master is not involved in the day to day business of the trust.

Q: Why should I have a trust?

A: Life is a rather unpredictable event. If you are a businessman you must certainly consider having you personal and business structure analysed an attorney who specialises in corporate structuring and trust law.

Q: What is the main aim of a trust?

A: To separate your assets from yourself while you still have full control over the assets.

Q: What is the main function of a trust?

A: The main function is to protect your assets against unforeseen circumstances, insolvency, divorce, estates duties, etc.

Q: Can I simply set up a trust and transfer all my assets to the trust?

A: No this is a rather involved process. When we assist you in the transferring of your assets, we must consider the following:

• Whether you are solvent / insolvent at the time of the transfer
• Whether you will still be solvent / insolvent after the transfer
• Whether there is a proper quid pro quo (proper counter value counter value) for the disposition
• Donations and taxes on donations
• Transfer duty
• The aim of the transfer
• Sureties that you have signed in the past
• You marital status
• The amount of control that you want to exercise over the trust assets
• The measure of control you would allow trustees succeeding after you have passed away
• The aim and objectives of the trust
• Whether you want to use the trust as a “opgaarpot” or whether you want to do business in the trust

Q: An overview of trusts?

A: See the schematic illustration hereunder:

Q: Will I need more than one trust?

A: It will depend on your personal wishes and circumstances. We normally advise people not to put assets that are on the risk in trust along with risk free assets.

Q: I am insolvent – Am I allowed to be a trustee of a trust?

A: Yes. There is a popular roomer that an insolvent can’t be the trustee of a trust. This is untrue and we will advise you on this.

Q: Which assets must be put into trust?

A: All your assets! The ideal is that all your assets be held in trust, or in companies of which the shares are held by trust, but it is not always obtainable because of the fact that you must pay your silent partner, the government, transfer duties on for example the transfer of immovable properties or the transfer of shares of companies which are deemed to be “property companies”.

Q: Why don’t I simply put my assets on my children’s names?

A: If your child becomes the owner of your assets, you create a Pandora’s Box. Your child can be sequestrated, and then your assets fall into his insolvent estate. Your child can for example not transfer immovable property until he has come of age. Should your child want to sell the property you must get permission from the Master of the High Court. If your child divorces, his/her spouse can lay claim to part of his assets (as well as your assets which are now in his name). If your child is sued by his creditors and they take judgement against him, the Sheriff can also sell your assets which are in his name. Should your child one day meet the beautiful lady with the big boobies and the small bikini line she might convince him to forget that the assets are yours. Another problem in our law is that principal of “estoppels”. According to the rules of Estoppel, if it is convenient to pretend that your assets are actually your child’s assets, and you later find that it is inconvenient to keep up this pretence that friction that you created works against you.

REMARK!!

We will assist you and train you in the practical use of a trust. If my office is to hot I call an

Air-conditioning Company who must install an air conditioner and show me how the remote works.

It is not necessary for me to become an air conditioner technician. I simply want cool air in my office.

Q: Can I use a simple template and register my own trust?

A: Unfortunately many people who assist clients in setting up trust have a simple template on their computer and they change the names of the settlers, trustees and beneficiaries etc, where after they register a trust. This is not the way we do business. Our trust deeds are revised annually and we have succeeded in overcoming many problems which exist in most trust deeds that I have read. We have seen some “bad trusts”.

Q: Example of a bad trust deed?

A: Over the many years that we have set up trusts I have often come across a situation which I will use as a case study;

CASE STUDY:

A lady, who is also an attorney by profession, consulted with me regarding her trust. The situation was as follows – when she was a small child her parents set up a trust which owned a very successful hotel. When she was eight years old her parents died in a motorcar accident and her uncle was appointed as trustee of the trust. Because they wanted the trust assets to be protected, the trust was “discretionary” trust which meant that the assets did not vest in my client but it indeed vested under the control of the trustees who had full power to pay benefits (capital and/or income) when they wanted to do so and in whatever amount they decided to pay out. The uncle then paid for our client’s school tuition as well as her university tuition. Once she qualified as a lawyer he stopped paying her any benefits from the trust. My client is about 45 years old and she has not received a single cent from the trust in the past twenty years. She has taken the matter to court on three occasions and on all these occasions the court simply said that it was the wishes of the settler (her father) that the trustee succeeding him after his death shall have such wide powers. What the uncle does with the trust’s money is, whenever there is a profit he reinvests it in the hotel so as to create a larger management fee for himself. He has thus in fact inherited the hotel as a source of income. In our practice we make absolutely sure that this situation for example can never occur.

We have been involved in the drawing up and registration of trusts for many years. The most common trust that is drawn up is the “discretionary family trust”.

Q: What are the main differences between; Family Trust, Discretionary Trust, Vesting Trust and Business Trust?

A:

• A Family trust normally refers to the fact that the parties in the trust are closely related.

A family trust can be either a discretionary trust or a vesting Trust.

• A Discretionary Trust refers to the fact that Trustee has the discretion in “toeken/uitdeel” of the trust assets.
• A Vesting trust is a trust where the assets in the trust, or an interest in the assets vests in the beneficiaries.
• A Business Trust is a Vehicle in which you do business, like in a CC or company, the rules pertaining to conducting business are very close to that of a CC.

Q: Will “they” be able to set aside the transfer of assets to my trust?

A: We will give you proper advice regarding the transfer of assets and the voidability of such transfers. If we have done a proper job and applied the rules pertaining to transfer of the assets, the transfer can’t be set aside. Many trustees don’t keep proper record of the transactions of the trust. If you do not keep proper record, you cannot proof that the assets belong to the trust. There must always be a money trail and a paper trail of the trust’s transactions.

Q: When do I / my Trust have to pay Donation Tax?

A: Any taxpayer who donates more than R100,000.00 in a single tax year, to any other person, becomes liable to pay 20% donation tax on the amount above R100,000.00. Parliament adjusts this ceiling (which is currently R100,000.00) from time to time. You and your spouse are separate taxpayers.

Q: If I have made donations to my trust, what paperwork must be in place?

A: At the bottom of this page you will find a set of documents which are very logical. If you make a donation to your trust, there must be a deed of donation, a list of the assets which are donated and a receipt by the trustees in which they acknowledge they received the assets. A very important aspect, which is neglected by many tax payers, is the IB40 tax form. The IB40 must be submitted to SARS by any person, trust, person/trust/company/CC who has received a donation. The advantage of submitting the IB40 is that you in future have proof that the donation was indeed made, and within a certain tax period.

Documentation for Trusts:

Q: When my trust receives a cash donation, what paperwork must be in place?

A: Use this set of documents which are very logical

• Deed of Donation
• Resolution
• Receipt
• Proof of bank transaction
• Remember to also submit the IB40 form (Declaration of donation received) to SARS when submitting the Trust’s tax forms at the end of the tax year.

Q: When someone donates assets to my trust, what paperwork must be in place?

A: Use this set of documents which are very logical:

If the trust receives movable assets by way of donation, you need to complete the following documents:

• Deed of Movable Asset DonationResolution
• Receipt
• Asset register
• Remember to also submit the IB40 (Declaration of donation received)form to SARS when submitting the Trust’s tax forms at the end of the tax year

Q: Which documentation must be in place if my trust prurchases movable Assets?

A: If the Trust purchases assets, you need to complete the following documents:

• Purchase agreement
• An Annexure, listing the assets that are purchased
• Resolution
• Receipt
• Asset register
• Proof of bank transaction
• Remember to declare the purchase of the assets on your annual tax return.