Family Trust In South Africa (2023)

Imagine an inheritance planning instrument that you can utilize to safeguard your assets and wealth from creditors, cut down property charges, and shift wealth to your family members. I bet you would love that!

You might ask if that is obtainable in South Africa. News Flash! That inheritance planning instrument is very much obtainable here in South Africa, and I would tell you how.

You are about to read about all you need to know about Family Trust in South Africa, so hang on as we navigate this subject together.

What is Family Trust?

A family trust is a trust created by a grantor(you) to shift the holding of assets to trustees(your lawyer or accountant) for the advantage of the inheritors(your family members). A family trust is a category of Inter Vivos(living) trust created and carried out while living. 

You can choose to either make your family trust revocable or irrevocable. When a family trust is revocable, you can be a trustee and modify the trustee as you so, please. It also means you can alter the terms of service in the trust deeds you want. A revocable trust also allows you to annul the trust completely.

However, an irrevocable family trust is the opposite of a revocable one. An irrevocable family trust cannot be altered once it has been created. Also, you cannot be a trustee of an irrevocable family trust, and you must nominate a trustee apart from yourself. The terms of service in a trust deed of an irrevocable trust cannot be modified, nor can it be annulled completely.

It is worthy to note that a revocable family trust becomes irrevocable at the grantor’s(your) demise.

How A Family Trust Works In South Africa.

To officially create a family trust, a trust deed must be crafted. It is highly recommended that the services of a lawyer are employed to draft an official trust deed thoroughly. A trust deed usually contains the name of the nominated trustee(s), heirs, and the various terms of service and administration of the trust.

Afterward, the grantor determines the assets assigned to the family trust and their financial cost. Art pieces, cash, shares, etc., are examples of assets incorporated in a family trust.

Since the family trust has no money to buy the assets for their financial value, the grantor gifts away assets to the trust, asset gifting is limitless so that a grantor can gift as many assets as possible away to a family trust.

However, it is highly recommended to consult a lawyer for proper professional advice before moving forward with asset gifting to a family trust.

Benefits Of A Family Trust In South Africa 

Several benefits of creating a family trust in South Africa abound, and they comprise of the following:

1. Probate Evasion

Without a family trust, your family members will not be granted access to your assets immediately following your demise. 

Probate is the first protocol they must go through before being granted access to your assets, even with a written will.

A family trust authorizes your family members to escape probate as the ownership of the assets is held by the trust and not the deceased.

2. Confidentiality Of Assets

A family trust keeps the information about your assets private even after your demise. However, without a family trust, explicit information about your assets becomes public knowledge after your demise during the Probate Process.

3. Asset Security

A family trust secures your assets from claims from your creditors or those of your family members because the ownership of the assets has been assigned to the trust. Legal wars are also evaded with a family trust.

4. Continuous Access to Asset Wealth

Your family members will have continuous access to your asset wealth to cater to their needs after your demise. It ensures that your family is well catered for even after your demise.

5. Decreased Property Tariffs

Property tariffs cannot be eradicated, but they can be reduced by creating family trust.

Disadvantages Of Family Trusts

1. They Are Cost Intensive

Creating family trusts has high-cost implications attached to them. Many fees are attached to creating a family trust, such as legal and financial fees charged by lawyers and accountants, who usually are the recommended trustee choice.

These fees make creating family trust expensive.

2. Absence Of Tax Benefits

There are no tax benefits attached to owning a family trust, as any revenue generated by the assets in the trust is taxed. Tax payments on assets cannot be completely eradicated; they can only be reduced after consulting your lawyer.

Costs Of Setting Up A Family Trust

Family Trusts are cost-intensive and complicated to create. The costs of creating a family trust involve legal and accounting fees. 

Comparing the fees charged by various organizations for creating and operating an existing family trust is a smart financial decision. The cost of creating a typical family trust is within the price range of R4,000 and R12,000.

Family Trusts And Bank Accounts

Family trusts need a bank account to hold the asset wealth. A bank account owned by a trust that trustees utilize to disburse asset benefits to trust heirs following the grantor’s death is called a Trust Checking Account.

A trustee(s) uses a Trust Checking Account to disburse asset benefits to only trust heirs and also to keep a record of every trust-related financial transaction effortlessly. A smart decision is to investigate if your bank choice as a Trustee offers Trust Checking Account Services as only certain financial institutions offer Trust Checking Account services.

Legally, only authorized trustee(s) are granted access to a Trust Checking Account to perform any trust-related financial transaction. In many trustees, only one signatory is needed to approve all financial transactions.

How To Set Up A Family Trust in South Africa

The Trust Property Control Act, 57 of 1998 has prescribed tough processes to create a family trust. 

First, you must determine the type of trust you want to create that best suits you. Then you will make a name choice for your family trust. Next, you will be expected to assign a trustee that will administer assets on behalf of beneficiaries and decide on how they are expected to discharge their fiduciary duties.

Next, you must state your family members as beneficiaries of the family trust and the asset benefit each trust recipient is entitled to. Following the beneficiary nomination, the legal ownership of assets must be assigned to the family trust as there is no family trust without asset transfer.

After that, a Trust deed must be crafted by a lawyer clearly stating how the asset benefits will be disseminated among the trust heirs, the remuneration of the designated trustee(s), and the terms of fiduciary duty discharge.

Hereafter, the documents needed for trust enrollment will be assembled, followed by the obligatory trust enrollment at the Office of the Master of the High Court. An enrollment number will be allocated upon enrollment.

Finally, following the document certification from the Master of the High Court, Authority letters investing trustees with permission to act in their capacity as stated in the trust deed are granted.

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Conclusion

A family trust is a trust that is created to ensure that your family is well catered for after your demise. It entails the transfer of assets ownership to a trust on behalf of your family members.

We have navigated the processes that have to be duly followed to create a family trust in South Africa. Like every other financial decision, a family trust has benefits and disadvantages.

It is important to note that if you want to retain your wealth and assets in your family, Or maybe you want to pass a robust financial legacy to the next generation, then considering creating a family trust is most definitely a smart choice.

However, It is highly recommended that you consult your financial advisor and property planning lawyer for professional advice to inform your decision if you consider creating a family trust for your family.