The following types of trust may be formed:
- Special Type A – a trust that has solely been created for the benefit of a person that suffers from a defined mental illness as defined by section 1 of the Mental Health Care Act, 2002 (Act No.17 of 2002) or a serious physical disability.
- Special Type B – a trust that has solely been created for the benefit of persons who are relatives of the deceased person and who are alive on the date of death of that deceased person and the youngest of the beneficiaries of the trust are under the age of 21 years on the last day of the year of assessment.
- Inter Vivos – a trust set up during the lifetime of a person.
- Testamentary – a trust set up in terms of the will of a person and which comes into effect after their death.
The income or capital rights of a trust are either:
- ‘Vested’ meaning the amount of income/capital distributed belongs to the beneficiary. Under a vesting trust the beneficiaries have a vested right to the income and/or capital of the trust.
- ‘Discretionary’ meaning the beneficiaries are not entitled to any income/capital unless the trustees decide to make a distribution to the beneficiaries. Under a discretionary trust the trustees have the choice as to whether and how much of the income or capital of the trust to distribute to the beneficiaries.
- ‘Combination’ which is a combination of both vested and discretionary rights.
A founder creates a trust for the benefit of beneficiaries. A trustee is normally the representative taxpayer of a trust.
Trusts can be defined in various ways, for example by, –
- The way in which they were formed, e.g. – during the lifetime of a person or upon their death under a will.
- The rights they grant to beneficiaries.
- Their purpose, namely trading trusts, asset protection trusts, charitable trusts or special trusts.
How is the income of a trust taxed?
The income of a trust is taxed through the:
• Beneficiary or
A trust is taxed at 40%, but a special trust is taxed at a sliding scale from 18% to 40%.
Top Tip: A Special ‘Type A Trust’ should apply at the SARS branch for classification as it qualifies for certain relief from Capital Gains Tax.
• Read more on how to register as a trust