Why does SARS target transactions with “connected persons” in relation to a trust?

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The South African Revenue Service (SARS) attempts to limit the abuse of trusts as a means of tax evasion by individuals. SARS identifies persons and entities that are closely connected to the beneficiaries of the trust - especially where income and capital gains have been transferred to such persons and entities - since the beneficiaries are the parties who will directly benefit from all income and capital gains accrued in the trust.

Your marriage regime may affect your claims in a divorce where a trust is involved

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The reality is that almost half of all marriages end in divorce. It is also a reality that future-to-be-ex-spouses usually attack trust structures set up by their spouses in an attempt to maximise their claims. Aside from being an emotionally traumatic life event, divorce can often have a severe impact on a person’s financial security and quality of life. Divorce generally goes hand in hand with a great deal of distress over the manner in which the assets, that have been built up during the marriage, are to be divided.

Are trusts taxed more punitively?

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Many people deliberately set up trusts with a view to save or avoid tax. This is problematic because the South African Revenue Service (SARS) has, over the years, introduced many anti-avoidance provisions to combat the use of trusts for tax avoidance schemes. Trusts serve many purposes, but saving tax is not one of them. If you have set up a family trust to protect your assets from creditors, and if you have administered the trust properly, you have the advantage of saving Estate Duty upon your death, and SARS cannot attack your trust because of this.

Does a trust require an independent trustee?

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In the context of estate planning, a trust can be described as a legal relationship, which has been created by a person (known as the founder or donor), through placing assets under the control of another person (known as the trustee) during the founder’s lifetime (an inter-vivos trust), or on the founder’s death (will trust, testamentary trust or trust mortis causa), for the benefit of third persons (the beneficiaries). A trust, generally speaking, is an arrangement that allows a person to hold assets (without owning them) for the benefit of the trust beneficiaries.

What does it mean that trustees of a trust have to act jointly?

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I met a trustee of a trust last week, who was confident that he could manage “his” trust alone, as a result of a resolution which he got signed by all trustees, which empowers him to do as he wishes with the trust’s assets. Such a red flag was raised, as many people are of the opinion that they can retain control over trust assets and act alone, without really involving other trustees in trust decisions. They were obviously not educated that such actions may have serious repercussions for the trustees, as well as the trusts’ assets.

Does your (free) will complement or contradict the trust deed?

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Are you one of the people who feel happy about getting a free will from a so-called professional? In South Africa, people are great targets to receive free products. Is there such thing as a free product, or are you signing up for a future cost? The saying goes “if it is too good to be true, it probably is”. It is no different with a free will, which is most of the time not adapted to your personal circumstances.

Formalities in trust deeds that assist with proper administration

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A family trust is by its very nature an intimate part of the financial and personal lives of a family, but the estate planner often loses sight of the fact that the trust - represented by the trustees - and the estate planner, are separate entities.

Do trust beneficiaries have any rights?

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Many people set up trusts, not really applying their minds. Often trust practitioners do not apply their minds and guide their clients either, use a standard trust deed template and just change the name of the trust, the names of trustees and use a standard template list of beneficiaries. Setting up a trust and selecting beneficiaries require a good understanding of trusts, as well as a proper consideration of one’s personal circumstances. There is no one size fits all solution.