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More individuals are recognising the importance of estate planning and are looking for effective ways to protect their assets in order to transfer their wealth to their beneficiaries. One of the mechanisms utilised in estate planning is the establishment of a trust.

A trust is a legal entity, set up by a founder, donor or Settlor (owner of assets) by way of a trust instrument, granting a Trustee(s) control over these assets on behalf of the beneficiaries of the trust. Trustees are responsible for ensuring that the assets under their control are well maintained for the benefit of the beneficiaries of the trust.

Trusts are formed in two ways:

Inter Vivos (Living) Trusts: These are created during the lifetime of a Settlor.
Testamentary Trusts: These trusts are created upon the death of the Settlor.

The administration of the trust assets is determined by the Settlor and Trustees in a formal document, known as the trust instrument, which is legally binding and provides the framework for the operation of the trust. Trustees should manage the trust in accordance with the terms of the trust instrument, as well as legislation (primarily the Trust Property Control Act).

The trust instrument for Inter Vivos trusts is the Trust Deed, whilst the trust instrument for testamentary trusts is the Will. This framework is integral in ensuring that the Settlor’s formal wishes are adhered to by the Trustees.

Types of Testamentary Trusts

The main types of testamentary trusts are:

Discretionary Trust: Trustees have discretion in determining the way in which the assets within the trust are allocated to the beneficiaries, who have contingent rights to the assets.
Vested Trust: Benefits awarded to the beneficiaries are predetermined and Trustees are not afforded any discretion. Beneficiaries have vested rights to the assets within the trust.

Types of Inter Vivos Trusts

The main types of Inter Vivos trusts that we specialise in are:

Family Trust: Created mainly for the benefit of the family members of the Settlor.
Charitable Trust: Established for charitable purposes and may be exempt from taxation.
Special Trust: Created either for the benefit of minors (testamentary) or a person with a disability.

Inter Vivos trusts can be discretionary or vested in nature.

Tax Implications of a Trust

All trusts must be registered as a taxpayer, even if the trust has no income and income tax returns for the trust must be filed annually. The income tax rate for a trust is 45% and capital gains tax also applies. The 2019 tax season officially started on Monday, 1 July and runs until 4 December 2019.

MMS Trust Services can assist:

Establishing a trust can be an intricate process and it is important to set up a trust that is in line with your goals and needs, as well as legislation. There are also potential disadvantages if a trust is not established and maintained efficiently. Therefore, enlisting the services of informed professionals, who empower you to effectively plan for the future of your estate, is vital.

MMS Trust Services was founded in 2008 and specialises in providing all accounting and tax related services for trusts. For more information about our division, please visit our website (www.mmsgroup.co.za), or contact us on info@mmsgroup.co.za or 011 672 0020 / 021 300 4089 for more information.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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