TO TRUST OR NOT TO TRUST?

It’s not whether you have a trust or not, but rather, do you know exactly why you have it? Should you, have it?

TO TRUST OR NOT TO TRUST?
It’s not whether you have a trust or not, but rather, do you know exactly why you have it? Should you, have it? What should it contain and how does it fit into your financial strategy? Too often I find individuals who say they have a Trust but do not know what the Trust is for or that it does not have any assets. There are many reasons for this however there always seems to be someone that has advised them to set up the Trust and then is not heard of after the Trust is set up.
In this article, we will explore the basics of Trust, some types of Trusts and the administration thereof.
What is a Trust?
Trust has been around since the 12 Century.
In its basic form, a Trust is an arrangement where assets are handed over to capable persons (Trustees) to administer those assets for the benefit of an incapable person/s (Beneficiary/ies).
In South Africa, Trusts are legislated by the Trust Property Control Act (Act 57/1988).
There are two types of Trust:
- Inter Vivos (established by living persons)
- Testamentary or Will Trust (established on the death of a person)
A Trust is set up when the Trust Deed has been registered at the Master of the High Court, who stamps the Trust Deed and issues the Letter of Authority setting out the first Trustees according to the Trust Deed.
There are two uses for Trusts that Quattro Finance Group are particularly geared to assist.
Wealth Trust
A Wealth Trust is an Inter Vivos Trust set up with the specific purpose of creating and maintaining wealth for a family unit, as well as providing income to support the living expenses of its beneficiaries (the family members).
The Trust Deed must establish the purpose of the Trust to give guidance to its Trustees. Trustees should design an investment strategy to achieve the objectives of the Trust.
Wealth Trust typically has a combination of growth assets and income-producing assets specifically designed to achieve its investment objectives.
Testamentary or Will Trust
Testamentary or Will Trusts are created upon the death of an individual. These Trusts are very important for Parents of minor children.
Assets are bequeathed to the Testamentary Trust from the Estate. These assets need to be invested appropriately to ensure that the Minor Children beneficiaries’ education and well-being is provided for. These investments would also be a combination of growth and income-producing investments.

Why Quattro Financial Room? The Quattro Financial Room team headed up by our two CA’s work closely with the Quattro Legal office. Together we provide methodical administration of the trust, transferring assets to the trust and understanding Donation and Capital Gains Tax, to provide you with simple explanations and guidance to complicated structures and tax regimes. At Quattro Financial Room, your future is our business.

Trust Administration Trustees have a fiduciary relationship with the Trust; therefore, they need to demonstrate that they have disposed of their duties appropriately. This would typically be demonstrated by:

Minute of Trustees meetings held regularly.
A review of the Trust’s Statement of Financial Position and Income Statement regularly.
Implementation and review of internal controls used to protect and safeguard the Trust’s assets.

A Trust is a separate juristic person and must be registered as a taxpayer in South Africa. Therefore, the trustees must ensure that the books of accounts are up to date and that Annual Financial Statements are prepared. It is costly to administer a Trust. Typically, a Trust would need to incur the following expenses:

Bookkeeping and accounting fee,
Preparation of Annual Financial Statement,
Submission of provisional and annual tax returns, and
Trustees’ fees.

Transferring assets to a Trust The biggest hurdle for Trusts is getting the assets from the Donor/Founder or Settlor into the Trust. The two common ways are for this to happen and both have tax consequences. The two common ways are:

Donation, and
Sale

Any donation from the Donor will be subject to Donations Tax at 20%, subject to the annual exemption. The Donation may also trigger Section 7 deeming provision where income distributed to minor children will be taxed in the hands of the donor. Any sale of assets from the individual to the Trust will be a disposal for Capital Gains Tax purposes and therefore subject to Capital Gains Tax. Professional Assistance There are many complex administrative and taxation laws around Trust and we at Quattro Finance Group have the necessary qualified Chartered Accountants and Attorneys to guide you on:

Necessity of a Trust,
Correctly set or alter the Trust,
Assist with Trust Administration,
Navigate through the complex taxation of Trusts.
Design and implement an Investment Strategy.

Trusts certainly have their place. Careful consideration needs to be had for all relevant administrative, tax and investment issues before entering this complex world.

Haydn Watkins CA(SA)
Quattro Financial Room
Director

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