A trust is a legal arrangement whereby control over property is transferred to a person or organisation for the benefit of someone else.
A Trust is a legal arrangement whereby control over property is transferred to a person or organisation (the trustee) for the benefit of someone else (the beneficiary).
A trust is governed by the terms of the trust document, which is usually written and governed by local law. Trusts are governed by the common law and the Trust Property Control Act No 57 of 1988.
Typical Characteristics
The property of a business trust is managed and controlled by trustees who have a fiduciary duty to the beneficiaries to act in their best interests.
Profits and losses resulting from the use and investment of the trust are shared proportionally by the beneficiaries according to their interests in the trusts.
Trusts are created for a variety of reasons, including tax savings and improved asset management.
What are the steps involved in registering a trust?
The trust deed is the founding document of a trust
- An original founding document is required.
- It’s recommended that a reputable firm of attorneys, with experience in trust law, should be approached.
- The attorney will advise on the drafting of the trust deed, registration of the trust deed and obtaining letters of authority from the Master of the Supreme Court.
- Nobody may act as a trustee until authorized by the Master of the Supreme Court.
What is a Trading Trust?
A Trading Trust is a form of unincorporated business organisation that holds property and is managed by trustees. Trading Trusts are not often used in South Africa because they usually only work well for certain types of businesses, for example property development enterprises.
Typical Characteristics
The number of trustees of a Trading Trust is limited to twenty persons. There are three main parties to a trust: the founder, the trustees, and the beneficiaries. Many ‘Trading Trusts’ consist of persons who occupy all three positions.
A Trading Trust is created by a Trust Deed, under which property is held and managed for the benefit and profit of the beneficiaries named in that deed. It is not a separate legal entity from its trustees, but is regarded as such for tax and transfer duty purposes.
Trustees must be authorised by the Master of the High Court.
What are the steps involved in registering a trading trust?
An attorney will have to set up the Trust Deed. If you operate as a trust, each member of the trust will be taxed as an individual, which means you would be taxed 40%. Even though a Private Company is taxed at 38%, don’t forget that 2% on a R1 million is a lot of money.
Inter Vivos Trusts
What is an Inter Vivos Trust?
Inter Vivos is a Latin terms that means “given away without receiving compensation, such as a gift”.
Typical Characteristics
Inter vivos trusts, are created “between the living”, ie by a donor or settler (the person who creates a trust by a written trust declaration) for the benefit of the beneficiaries of the trust, the assets of which are administered on behalf of the beneficiaries.
Inter vivos trusts create “vested” rights (ie rights to capital or income which may not be watered down) or “discretionary” rights to capital and income, (meaning that the trustees can determine capital and interest rights from amongst a designated “potential” class of beneficiaries).
A business trust is an operating business entity, usually an inter vivos trust, which operates as a business entity, but because of adverse tax consequences not as popular as it used to be.