Trusts and gifting

Different types of trusts

Trusts in South Africa are subject to income tax and capital gains tax. There are also specific tax rules for different types of trusts. For example, special trusts for persons with disabilities benefit from certain tax concessions. The South African Revenue Service (SARS) regulates trust taxation and trusts must adhere to strict reporting requirements. It is important to speak with a tax planning adviser about your circumstances.

In South Africa, trusts are commonly used for various legal, financial and estate planning purposes. Here are the main categories of trusts in South Africa:

Inter vivos trusts (living trusts)

These trusts are created during the lifetime of the settlor. They are often used for estate planning, asset protection and tax efficiency. These can be:

• Revocable trusts (where the settlor can alter or dissolve the trust), or;
• Irrevocable trusts (where the terms cannot be changed once established)

Living trusts help manage assets such as property. They can be used to reduce inheritance tax, which may be particularly relevant for expats in South Africa.

Testamentary trusts

Testamentary trusts, or will trusts, are established through the will of the deceased person. They come into effect upon the death of the settlor.

Will trusts might be used to provide for vulnerable loved ones, especially concerning care home costs. Testamentary trusts are often used by married couples or civil partners to ensure that the family home is passed on appropriately and securely in the event of one partner passing away.

Discretionary trusts

Discretionary trusts allow you to choose multiple beneficiaries rather than a single recipient of your trust. This can offer flexibility. This type of trust is popular for funding education for the next generations and looking after somebody who is unable to manage their own affairs.

Fixed trusts

In a fixed trust, the beneficiaries' shares of the trust's income and capital are predetermined and specified in the trust deed. The trustees have no discretion regarding how the income or assets are distributed; they must follow the terms set out in the trust deed.

Family trusts

Family trusts are created to benefit family members and manage family assets. They can be used for estate planning, protecting family wealth and providing for family members in a structured manner. They can be either discretionary or fixed.

Charitable trusts

These trusts are established to benefit charitable organisations or causes. Charitable trusts can provide tax benefits to the settlor and are governed by specific regulations to ensure that the funds are used for charitable purposes.

Special trusts

Special trusts benefit individuals with special needs or disabilities. They are treated with certain tax benefits under South African tax law designed to provide financial support and security for individuals who cannot manage their own affairs.

Living annuity trusts

These are used in retirement planning and involve transferring funds into a trust that provides regular retirement annuities to the settlor or beneficiaries. Living annuity trusts are often used to ensure a steady income during retirement.

Non-resident trusts

A non-resident trust is managed from outside the country, where neither the trustees nor the beneficiaries are South African tax residents. It is taxed only on income or capital gains sourced within South Africa, such as rental income or property sales. South African-sourced income may be subject to tax, including withholding taxes on dividends, but Double Taxation Agreements (DTAs) may provide relief. Trustees must comply with South African tax laws and reporting requirements for any local income.

Frequently Asked Questions