It’s important for anyone considering creating a trust to understand the nature of the trust, trustee duties, and beneficiary rights. Don’t create trust until you’ve done your homework and double-check that it’s appropriate for your situation.
Study these factors before you set up a trust
Before registering a trust, make sure you’ve considered the following:
Acceptant of relinquishing direct control of assets transferred to the trust
The trust may be viewed as an alter ego of yourself, and the purpose for registering a trust may be defeated if it is not properly defined. A trust can be structured so that you are both trustee and beneficiary, as long as there is a clear separation between control and ownership, as well as enjoyment of the trust’s assets.
What role does trust play in your overall estate planning strategy?
Will the trust primarily be used to avoid paying taxes on investments? Chances are if that’s true, SARS will attack the trust, or ignore it. SARS will not attack your trust if you have set one up as part of your estate planning.
How much does the trust’s benefit outweigh the costs and administration involved in establishing and running it? There are a variety of benefits, including those that are easy to calculate, as well as those that are more difficult.
Is there a requirement for formalities?
In the event that property is transferred by a written agreement, testamentary writing, or court order, a trust will be created as a result of that. A few documents are required before this can be accomplished.
The following must be decided before a trust deed can be written by a professional:
The trust’s desired name
The name and/or surname of the trust should be avoided, as this would make it easy for creditors or SARS to track your trust down. As opposed to companies, trusts are registered with the High Court’s Master, not with the Registrar of Companies. As a result, you can give a trust any name you want! No need to reserve a name as you would with company registration.
A person could have more than one trust with the same name, for example in the same way that a motor vehicle has its own unique registration number, a trust is registered and assigned a registration number. Although the trust deed may allow you to change the name of your trust, the trust number will always remain the same and serve as your trust’s identifier. After the letters, the Master of the High Court’s office assigns a number, followed by the year of the trust’s registration.
When a trust was registered in 2017, the registration number IT 3293/17 indicated that it was the 3293 trust to be registered at the Office of the Master of the High Court. It’s important to note that a trust’s registration will always include the Master of the High Court’s office where it was originally created. Numbers are assigned to every year by the office of each Master at the High Court.
The kind of trust you have
Select a discretionary or irrevocable trust. On one hand, trustees can decide how much income (or capital) each beneficiary receives, while on the other, income and capital gains are transferred to the beneficiaries of the discretionary trust. In the event of a beneficiary’s insolvency or death, vested trusts can become complicated.
The trust’s purpose or objective
To ensure the trust’s legal existence, it is essential to clearly define the trust’s purpose and object in the trust agreement.
Its founder’s name.
The trust’s founder is the person who establishes the trust in the first place. Someone who intended to set up the trust and who transfers at least the initial donation to it must be listed as this person’s name. Because of this, the founder may not be the lawyer who creates the trust, nor may it be his/her secretary.
When the trust deed states that the initial donation is to be made, the founder is required to physically pay or transfer the specified amount.
It’s possible that trust has more than one creator. If they do, it could have negative taxes and other consequences.
The proposed trustees’ names
Here, extreme caution should be exercised. Experience running a trust and accounting knowledge are highly recommended because it will reduce the risk of the Master of the High Court requiring the trustees to put up security for the discharge of their duties if they do not have these qualifications.
Do not appoint your children or grandchildren as trustees while you or your spouse are still alive as a general rule of thumb Too often, children’s goals and motivations differ from those of their parents. This can cause unnecessary stress, especially if the trust is the sole source of income for the parents. Your children should only be allowed to manage the trust after both of you have passed away. If possible, include a clause in your will naming your children as successor trustees. There will be continuity as a result.
Too many trustees could make decision-making difficult, if not impossible if they are appointed. A minimum of two trustees should be chosen to prevent one person from making all the decisions. Please limit your nominees to a maximum of four or five, depending on your personal situation.
The J417 Master form must be completed by each trustee before they can be appointed as a trustee.
Do you have the necessary documents?
If you want to register a trust, you must submit the following documents to your local High Court Master, in accordance with the requirements of the Trust Property Control Act:
- To the High Court Trust Registration and Amendment Form, a cover letter (J401)
- A pair of executed trust deeds
- Annexure B of the Master of the High Court’s fee for R 250
- acceptance of trusteeship (J417) from each trustee, along with a brief of the planned trustees’ credentials and their knowledge in managing trusts. It is necessary for the High Court Master to be satisfied that the trustees will be able to carry out their duties in a competent manner. To satisfy the High Court Master, the trustees may be required to put up security, and even an audit of the trust may be ordered.
- A trustees’ declaration
- Indemnity agreement signed by an independent trustee
- a certified copy of each trustee’s identity document
- Statements of Beneficiaries (J450)
Accounting records will be maintained in accordance with generally accepted accounting practices, as pledged by the auditor/accountant (J405).
Please be aware that potential trustees do not have the authority to act as trustees until the Master of the High Court has issued the Letters of Authority. Prior to obtaining the Letters of Authority from the High Court Master, do not engage in any commercial or legal transactions, as those transactions will be invalid.
All trusts are mandated to create an account with SARS as taxpayers in order to receive tax benefits. IT77TR (Application for Registration as a Taxpayer or Change of Registered Particulars: Trust) must be completed and submitted by each trust.
Trustees must appear in person at SARS to register a trust for Income Tax purposes. Main Trustees and Representative Trustees can register trusts on behalf of the other trustees, but only if this has been authorized in writing by a specific resolution, with the words “Main Trustee” and “Representative Trustee” stated therein.
So, that is a few tips to help you register Trust in South Africa and some errors you can possibly avoid.