In the context of estate planning, a Trust may be described as follows:<\/p>\n
\u201cIt is a\u00a0legal relationship\u00a0<\/strong>which has been created by a person (known as the \u201cfounder\u201d, \u201cdonor\u201d, or \u201csettlor\u201d) through placing assets under the control of another person or persons (known as the \u201ctrustee\u201d) during the founder\u2019s lifetime (an \u201cinter vivos Trust\u201d) or on the founder\u2019s death (a \u201ctestamentary Trust\u201d), for the benefit of third persons (the \u201cbeneficiaries\u201d).<\/p>\n Trusts are governed by the\u00a0Trust Property Control Act no 57 of 1988 (TPCA)<\/strong>.<\/p>\n South African Trust Law is a mixture of English, Roman-Dutch and South African law and developed mostly by South African courts and common law principles until 1988 when the Trust Property Control Act 57 of 1988 was promulgated.<\/p>\n A Trust\u2019s constitutional document is the Trust deed which sets out the framework in which the Trust must operate, including its powers and limitations. As a general rule, Trusts must be registered with the\u00a0Master of the High Court\u00a0<\/strong>in the relevant jurisdiction where the Trust\u2019s assets are situated.<\/p>\n Trustees may only act once the Master has issued Letters of Authority allowing them to act.<\/p>\n Trustees have a fiduciary duty to act\u00a0\u201cwith the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another<\/strong>\u201d.<\/p>\n Trustees act together for and on behalf of the Trust and its assets in the best interest of all the beneficiaries.\u00a0<\/strong>This is, of course, in line with the provisions of the Trust deed and the TPCA.\u00a0A person who is ineligible or disqualified in terms of the\u00a0TPCA\u00a0<\/strong>cannot act as a trustee.<\/p>\n In Crookes v Watson\u00a0<\/em>the legal principles for the\u00a0inter vivos\u00a0<\/em>trust were established. In this case the Appellate Division held an\u00a0inter vivos\u00a0<\/em>trust to be a contract between the founder and the trustee in favour of the beneficiary, otherwise known as a\u00a0stipulatio alteri\u00a0<\/em>or contract in favour of a third party.\u00a0However in 1984, the court held in\u00a0\u00a0Braun v Blann<\/em>\u00a0and Botha<\/em>\u00a0that a Trust is not like any other legal institution, but rather a sui generis, which means that the trust is not a legal person, but has legal capacity.<\/p>\n The Trust is not a juristic (legal) person but is regarded as having a separate legal identity (e.g. for tax purposes in terms of the Income Tax Act).<\/p>\n A Trust cannot sue or be sued, as it does not have legal personality, but act through its Trustees in their capacity.<\/p>\n Assets can be transferred to a Trust by sale (or on a loan account granted to the Trust), by donation or on death in terms of a Will. When assets are sold to a Trust, there must be a loan account or a sale agreement. Without the said agreement, the South African Revenue Service (SARS) could regard the transaction as a donation and donations tax at a rate of 20% will be applied.<\/p>\n The loan agreement does not necessarily have to include an interest rate but must include a repayment date. Section 7C of the Income Tax Act originally came into effect on 1 March 2017, but it is important to note that on 19 July 2017, the provisions of Section 7C were extended to include a loan made by an individual to a company in which such a Trust holds at least 20% of the equity shares or can exercise 20% of the voting rights.<\/p>\n Therefore:<\/p>\n Section 7C is applicable when the following requirements are met:<\/strong><\/p>\n If the loan to the trust does not bear interest, an amount of interest is calculated at 4.5% (the official rate: \u201crepo rate\u201d + 1%). This amount will be treated as a donation. Please note that donations tax is not calculated on the capital sum, but on the difference between the rate charged and the official rate of 4.5%. This will be deemed to be a donation.<\/p>\n Donations Tax is levied at a rate of 20%. The annual Donations Tax exemption of R100 000 for natural persons is available and may be used against the donation. (Assuming that no other donations are made during the financial year of assessment).<\/p>\n The amount which is to be treated as a donation to a Trust is deemed to occur on the last day of the year of assessment of the Trust. The provision will apply to new and existing loans which are in existence from 1 March 2017. It is important to note that Donations Tax must be paid by the end of the month following the month in which the donation takes effect.<\/p>\n Example<\/strong><\/p>\n Property sold to the Trust at R2.5 million<\/p>\n 4.5% interest rate = R112 500<\/p>\n Minus R100 000 allowable donation per year = (R112 500 \u2013 R100 000 = R12 500) x 20% Donations Tax<\/p>\n = R2 500 per year<\/u><\/em><\/p>\n *\u00a0Effective from 1 March 2018, donations exceeding R30 million will be taxed at a rate of 25%<\/em><\/p>\n In the estate planning and Will drafting discussion, one needs to be familiar with the various pieces of legislation to best assist our clients.\u00a0It is therefore important to deal with a specialist about the formation and administration of a Trust to avoid the pitfalls and challenges.<\/p>\n","protected":false},"excerpt":{"rendered":" In the context of estate planning, a Trust may be described as follows: \u201cIt is a\u00a0legal relationship\u00a0which has been created by a person (known as…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-726","post","type-post","status-publish","format-standard","hentry","category-innov8ions"],"_links":{"self":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/726","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/comments?post=726"}],"version-history":[{"count":1,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/726\/revisions"}],"predecessor-version":[{"id":727,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/726\/revisions\/727"}],"wp:attachment":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/media?parent=726"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/categories?post=726"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/tags?post=726"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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