Know your founder

Category: Trusts

11 August 2015  |  by Chamonie Buys

Trustees are often faced with the challenge of having to locate the Founder (also referred to as the Settlor or Donor) when they want to amend the Trust Deed and the deed stipulates that the Founder, whilst alive, must be a party to the agreement to amend.

There is a tendency among companies that offer Trust services to recommend that the Founder of the Trust must be an independent person, unrelated to the trustees and beneficiaries.

This is unnecessary and we emphasize the following:

  1. you may be the Founder, a Trustee and a Beneficiary of a Trust – the only requirement is that one of the Trustees, not the Founder, must be independent;
  2. appointing an unrelated Founder holds no benefit or advantage to the Trust or the Beneficiaries; and
  3. appointing an unrelated Founder may cause difficulties when the Founder is required to be party to an agreement to amend the Trust Deed.

A further advantage of having a related Founder, is the exemption from Transfer Duty in terms of s 9(4)(b) of the Transfer Duty Act where property is transferred to a beneficiary who is a relative of the Founder. This exemption applies to a beneficiary who is related within the third degree of consanguinity to the Founder, but only if no consideration has been or will be paid (for example, rent for the residence) either directly or indirectly in respect of the property.

Note that Capital Gains Tax may nevertheless be payable upon the disposal of property and when structuring these transactions the planner must also take cognisance of section 20B of the Transfer Duty Act, which targets “schemes” designed specifically at obtaining an undue tax benefit.

Finally, always make sure a professional tax, property and trust adviser is consulted before entering into any form of restructuring involving immovable property and your trust.