11/06/2026
1. What is a Trust (briefly, in SA law)
A trust is a legal arrangement where a founder transfers assets to trustees, who must manage those assets independently and in the best interest of beneficiaries, in terms of a trust deed and the Trust Property Control Act 57 of 1988.
Importantly:
• Assets belong to the trust, not the founder or trustees personally.
• Trustees owe fiduciary duties and must act jointly and independently.
2. Benefits of a Trust in South Africa
2.1 Estate Planning & Estate Duty Savings
• Assets properly transferred to a trust fall outside the founder’s deceased estate.
• This can save:
o Estate duty (20% up to R30m; 25% above R30m)
o Executor’s fees (±3.5% + VAT) - In my case my normal executor's fee I charge is 2,5% + VAT
• The trust does not die, ensuring continuity across generations.
2.2 Asset Protection
• Trust assets are generally protected from personal creditors of:
o The founder
o Beneficiaries
• Useful for:
o Business owners
o Professionals exposed to claims
o Second marriages / blended families
Protection only works if the trust is not the founder’s alter ego.
Practical structuring point (important)
• It is often safer to hold key assets (e.g. properties, investments) in the trust, while operating the business in a separate entity (e.g. company or close corporation or sole proprietor), rather than inside the trust.
• Reason:
o If the business operates in the trust and suffers:
Trading losses
Lawsuits
Insolvency
→ the trust assets themselves are exposed and can be depleted.
• By separating structure:
o Trust = asset-holding vehicle
o Company/Sole proprietor = risk-taking/business operations
This ensures that high-value assets are insulated from business risk, which is one of the main reasons trusts are used in the first place.
2.3 Protection of Vulnerable or Minor Beneficiaries
• Trusts allow:
o Controlled distributions
o Protection against irresponsible spending
o Long term care of minors or dependants
• Testamentary and special trusts can be very effective here.
2.4 Continuity and Succession Planning
• Assets don’t get frozen on death.
• No need to wait for estate winding up before income can flow to family members.
• Ideal for:
o Farms
o Family businesses
o Rental property portfolios.
2.5 Tax Planning Flexibility (with limits)
• Conduit principle (section 25B) allows income or capital gains to flow through to beneficiaries taxed in their hands, if vested/distributed in the same year.
• This can lower overall tax if beneficiaries are SA residents in lower tax brackets.
Since 1 March 2025, non resident beneficiaries are excluded from this flow through – income remains taxed in the trust.
Important principle (critical for planning)
• It is important to understand that tax planning is an added benefit — not the primary reason to create a trust.
• Current legislation and SARS scrutiny means:
o Tax advantages are more limited than in the past
o Trusts created mainly for tax avoidance are more likely to be challenged
A trust should first and foremost be used for:
• Asset protection
• Estate and succession planning
• Protection of beneficiaries
Practical takeaway:
If the main reason for the trust is tax saving, it is usually the wrong structure. Tax benefits should support the strategy — not drive it.
3. Disadvantages of a Trust in South Africa
Very High Tax Rates in the Trust
If income or gains are retained:
• Income tax: flat 45%
• CGT effective rate: approx 36%
• No rebates or thresholds apply to ordinary trusts.
Trusts are tax punitive if not actively distributed.
3.2 Section 7C – Loans to Trusts
• Selling assets to a trust on an interest free or low interest loan account may trigger annual deemed donations.
• The deemed donation is calculated as the difference between the interest charged and SARS’ official rate.
• Donations tax applies at:
o 20% (up to R30 million cumulative)
o 25% above that
• This deemed donation is triggered every year for as long as the loan remains outstanding.
Important clarification on the exemption
• The annual donations tax exemption for individuals is now R150,000 per tax year (from 1 March 2026).
• However:
o It is still quickly exceeded where loan balances are large
o It does not eliminate the ongoing annual tax exposure under section 7C
In practice, most meaningful trust loan structures will still result in recurring donations tax liabilities over time.
Practical risk
• If loan accounts are not actively managed:
o The tax “leakage” can become significant
o The intended estate planning benefit can be reduced or lost
Practical takeaway:
Although the exemption has increased to R150,000 per year, it is still relatively small compared to typical trust loan balances — so section 7C can still create an ongoing annual tax cost if not properly structured.
3.3 Setup and Ongoing Costs
Expect:
• Legal drafting costs
• Independent trustee fees
• Annual accounting & tax compliance
• Admin: resolutions, minutes, Master of the High Court, SARS eFiling
A trust is not cost effective for small asset bases.
Important structuring principle
• It is critical to use a trust specialist (legal and/or fiduciary expert) for the initial structuring and drafting of the trust deed.
• Poorly drafted trusts often lead to:
o Tax inefficiencies
o Loss of asset protection
o Practical difficulties in administration
o Increased risk of SARS challenges
o Costly restructuring later
A properly drafted trust deed is not just a formality — it determines how effective the trust will be over its lifetime.
Practical takeaway:
Rather spend more upfront to structure the trust correctly. Fixing a poorly drafted trust later is usually far more expensive and often impossible without tax consequences.
3.4 Administration and Governance Burden
• Trustees must act independently and jointly
• Poor administration can:
o Destroy asset protection benefits
o Cause SARS to attack the structure
o Lead to trust being “pierced” in litigation.
3.5 Loss of Personal Control
• Assets are no longer yours.
• If you still behave as if they are, the trust will be legally vulnerable.
• Founders often underestimate this practical reality.
3.6 Uncontrolled Growth of Beneficiaries (Generational Risk)
• Over time, especially in family trusts, the beneficiary class can expand significantly (children → grandchildren → great grandchildren, spouses, etc.).
• This can lead to:
o Dilution of value (too many beneficiaries sharing the same pool of assets)
o Practical difficulties in decision-making (especially with discretionary trusts)
o Increased risk of disputes between family members
o Pressure on trustees to make “fair” vs “practical” distributions
o Possible challenges in maintaining the original purpose of the trust
In extreme cases, trusts become administratively unworkable and lose strategic value.
How to manage this risk
• Carefully define the class of beneficiaries in the trust deed (e.g. limit to specific generations or bloodline only)
• Use vesting provisions or sub-trust structures over time
• Allow trustees the power to:
o Exclude beneficiaries
o Limit distributions to certain categories
• Consider terminating or splitting trusts when they become too large
• Regularly review the trust as part of ongoing estate planning
4. Critical Points to Consider BEFORE Creating a Trust
4.1 What is the Real Purpose?
A trust should not be created solely for tax saving. Valid reasons include:
• Asset protection
• Estate planning across generations
• Protection of minors
• Business or farm continuity
SARS increasingly challenges “tax only” trusts.
4.2 Choice of Trustees
• At least one independent trustee is strongly recommended.
• Trustees must:
o Understand fiduciary duties
o Be active, not rubber stamps
4.3 How Assets Will Be Transferred In
Key question:
• Donation? (donations tax risk)
• Sale on loan? (section 7C exposure)
• Market value substantiation?
This decision largely determines whether the trust will succeed or fail.
4.4 Size and Nature of Assets
Generally, trusts make sense where:
• Asset values are substantial
• Growth assets are involved
• Long term planning is required
For small portfolios, personal ownership or a company may be better.
4.5 Beneficiary Profile (Resident vs Non Resident)
Post 2025, trusts with foreign beneficiaries face:
• Reduced tax efficiency
• Higher compliance requirements
• Possible provisional tax obligations.
5. Bottom Line
A trust is a powerful tool — but only when:
• Properly structured
• Properly administered
• Actively managed
• Used for the right reasons
It is NOT:
• A cheap structure
• A set and forget solution
• Automatically tax efficient
