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When do I need a trust and how do I set it up?

What is a trust?

A trust is a contract between two or more people. Trustees are appointed to hold, administer and distribute trust assets (including money, share portfolios, immovable property etc.) for the benefit of the trust’s beneficiaries. A trust deed is the founding document and the parties to a trust include the trust founder, the trustees and the beneficiaries.

Who can set up a trust?

Any person with contractual capacity to make a will and who plans to dispose of his property in a specific manner within a trust framework can create a trust (he/she is known as the trust founder). The founder hands over control of trust assets to trustees, who are appointed by the trust founder. Trustees are responsible for ensuring the trust assets are administered according to the founder’s intention (articulated in the trust deed) and for the benefit of the beneficiaries. A natural or juristic person can be appointed as a trustee and can be a beneficiary of the trust.

When is a trust needed?

A trust ensures that, amongst other things, upon death, beneficiaries receive maximum value from the estate’s assets, and it can play an important role in estate and/ or financial planning for individuals, who wish to make use of the various benefits (including estate duty and income tax advantages) the trust mechanism offers.

A trust is created to preserve a trust fund. The trust fund is used to financially support the trust beneficiaries, preserving a business for the benefit of trust beneficiaries, protecting family assets from business risks related to the trust’s founder, providing for a spouse/ child’s maintenance following the death of the trust’s founder, to save on estate duty, and can even be created for a charitable purpose.

The benefit of a trust from earlier on in one’s lifetime

While there are other benefits to having a trust, one of the greatest benefits is for estate planning. Once assets have been transferred to a trust, these assets no longer form part of your estate. As such, any future growth in capital value does not attract estate duty. Over a lifetime, the capital value of assets can appreciate substantially if well managed. Later in life, one can utilise the assets to fund expenses in a tax-efficient manner, and the benefit of these assets not attracting estate duty can be passed on to future generations or beneficiaries. It is therefore not only the very wealthy that should consider trust structures in estate planning. There are many nuances that an Anchor representative can assist you with in understanding the benefits of a trust as part of your wealth-management solution.

What are the duties of trustees?

Trustees are usually given the discretion to award trust income or assets to beneficiaries in a prudent manner, subject to any conditions that are set out in the trust deed. A trustee is duty bound to the trust beneficiaries to act with the necessary care and diligence in the performance of their duties and exercise of their powers. If a trustee fails to exercise the necessary care, diligence and skill in the exercise of their duties, they can be held personally accountable.

Various types of trusts

There are various types of trusts including inter vivos (living), charitable, vesting, and testamentary trusts. Which type of trust is appropriate for you depends on your individual needs and circumstances.

How does SARS tax a trust’s income?

All trusts have to be registered with the SA Revenue Service (SARS) and income and capital gains generated in a trust are taxed either in the hands of the donor, the beneficiary, or within the trust itself. The tax rate depends on the type of trust and whether the trust itself is taxed (at a flat rate of 45%) or if it’s a special trust (these are taxed at a sliding scale from 18% to 45% [similar to a natural person], according to SARS). If income and capital gains are passed on to beneficiaries, according to the conduit principle, this becomes taxable in the individual’s hands. This can be beneficial as the income and gains can be distributed to the beneficiaries with the lowest applicable marginal tax rates.

How do I set up a trust?

Anchor can assist you in setting up and administering a trust by considering your unique individual needs and circumstances, whether for your family or other beneficiaries. Contact us on 011 591 0677 or email us at info@anchorcapital.co.za.



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WEBINAR | The Navigator – Anchor’s Strategy and Asset Allocation, 2Q24

Anchor CEO and Co-CIO Peter Armitage will host the webinar, provide an introduction to current global and local market conditions and give his thoughts on offshore equities. Together with Head of Fixed Income and Co-CIO Nolan Wapenaar, Pete will also discuss Anchor’s strategy and asset allocation for 2Q24, focusing on global equities and bonds. In addition, Fund Manager Liam Hechter will provide insights into local equities, highlighting some investment ideas; Global Equities Analyst James Bennet will discuss Ferrari and give an update on Tesla, and finally, Analyst Thomas Hendricks will participate in a Q&A with Peter, explaining the 10-year US Treasury to attendees.