Trusts
By Yolande Engelbrecht, Fiduciary Head of Customer Experience and Education
As a parent, there is a lot of planning that goes into ensuring your children's well-being and financial security. Thinking about a future for your children without you, might be daunting, but it is vital to consider who will care for them and protect their interests after your death.
In South Africa, testamentary trusts, also known as mortis causa or Will trusts, are an invaluable tool for protecting the interests of both minors and/or individuals with special needs. They are also relatively simple to set up and, can receive favourable tax treatment.
Setting up a testamentary trust
A testamentary trust is easy to set up since it is provided for in your Will,and is created only after your death. Your Will must include a provision for establishing such a trust, instructions for which assets should be bequeathed to the trust, details of how these assets should be handled and administered, trustee nominations, and how and when the trust must terminate.
Purpose and objective of the trust
The provisions regarding the trust need to be clearly stated in the Will. These importantly include how the trust assets should be applied for the benefit of the beneficiaries and what the powers of the trustees are to achieve these objectives. Keep in mind that most testamentary trusts that have been created for the benefit of minors, are Bewind trusts. This means that the beneficiaries have a vested right to the trust assets while the administration of these assets are the responsibility of the trustees.
Role of the trustee
Trustees are legally obligated to enforce the instructions for the trust recorded in your Will. The nominated trustees must approach the Master of the High Court to receive the formal appointment. Only once appointed, will the trustees be able to accept and manage the trust assets. A very important consideration is to nominate credible and qualified, professional trustees who have the necessary knowledge and skills to effectively manage the assets of the trust, and who you believe will do so in the best interests of your minor children or dependants.
Termination of the trust
Usually, the Will specifies when the trust will terminate, for example, when the beneficiaries reach a specific age. The Will should typically state that on termination, all capital assets and unpaid income should be paid over to the beneficiaries.
Trust administration costs and income tax considerations
All trusts must be registered with SARS. Unlike living trusts, which are taxed at a flat rate of 45% on income retained in the trust, testamentary trusts, where the beneficiaries are minors (under the age of 18 at the last day of the tax year) or where the beneficiaries are mentally or physically disabled, are taxed as per the normal income tax sliding scales for individuals. With the transfer of assets from the deceased estate to the testamentary trust, there is no transfer duty on fixed property or any of the costs and complexities associated with transferring assets to a living trust.
Did you know?
The Trust Property Control Act allows professional trustees to charge and receive a fair remuneration but does not dictate what the charge should be. In general, the annual trusteeship fees charged by professional trustees in testamentary trusts range between 1% and 2% per annum on the value of assets in the trust.
