Implications of local trusts with foreign beneficiaries

~ Written by ~

South African families who have created South African trusts may be living all over the world. It is important to understand the tax rules and other implications for foreign beneficiaries.

Does your trust not exist or will it be disregarded by the Court?

~ Written by ~

The fact that you have a written trust deed is no guarantee that your assets are safe and that the trust is safe from attack. If you never intended to create a “genuine” trust from the outset, the trust may be attacked and labelled as a sham trust; in other words, a “smoke screen”. If, on the other hand, you intended to create a trust, but you have dealt with the trust assets as if they were your own, then your creditors, SARS and soon-to-be-ex-spouse can attack the trust and have it labelled as an alter ego trust; in other words, an extension of yourself.

Can a trust deed of a living (inter vivos) trust be amended?

~ Written by ~

The trustees’ mandate is to execute functions on behalf of the trust, and in terms of the trust deed. The trust deed should determine how the trust may be amended, should such a need arise. A trust deed, for example, restricts trustees from purchasing fixed property. However, the main purpose for which the trust was established necessitates this right. In this case, the trust deed would need to be amended so as to allow for this purpose. Sometimes the trust deed does not provide for its amendment.

When does a trust terminate?

~ Written by ~

Similar to companies and close corporations, a trust may have a perpetual existence that is not attached to the life of any person. The fact that trusts can exist for generations is one of their core benefits. There are no rules that restrict the perpetuity period of a trust, although, interestingly, it has been found that most trusts are deregistered after two generations of being handed down.

Things to consider before registering a living (inter vivos) trust

~ Written by ~

Anyone thinking of setting up a trust needs not only to make sure that he/she is creating a valid legal structure, but also to understand the nature of the trust, the duties of trustees, and the rights of beneficiaries. Before you create a trust, do your homework and make doubly sure that a trust is suited to your needs and circumstances and that you are committed to follow the rules.

Is there any significance being the founder of a trust?

~ Written by ~

Often when trust practitioners set up trusts for their clients, they choose arbitrary founders for the trust, completely disregarding this critical requirement. Clients are often advised that the founder cannot, or should not, simultaneously hold the role of trustee and/or beneficiary. This is simply not true. The Trust Property Control Act acknowledges the fact that the founder can also be a trustee, through the definition of a trustee as “any person (including the founder of a trust) who acts as trustee…”.

Principles laid down by the Courts regarding the inclusion of trust assets upon divorce

~ Written by ~

Trusts are frequently used (and abused) by spouses as a vehicle into which they transfer their assets, using the trust for their own benefit and not for the benefit of third parties (the beneficiaries). There have been a number of Court judgements where it was held that one of the factors that a Court may consider is when certain substantial assets were held in trust by one of the parties who used the trust as his/her "alter ego". It is important to note that the marriage regime is a determining factor in the judgements.

How do people still use trusts as tax planning vehicles?

~ Written by ~

The advantages of proper tax planning in a well-structured trust are clearly defined in the tax legislation. Even minor beneficiaries can enjoy tax-friendly distributions. Estate planners use the following principles in structuring their financial affairs to enjoy maximum benefit...