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The founder of your trust

We are often faced with the predicament in which trustees of an existing trust find themselves when they want to amend the Deed of Trust and the Deed stipulates that the Founder/Settlor/Donor, whilst alive, must be a party to the agreement to amend.

There is a tendency amongst companies which offers the services of setting up Trusts to recommend to the client that the Founder of his/her Trust must be independent.

Allow us to set the record straight:

  • You may be the Founder, a Trustee and a Beneficiary of a Trust provided that you appoint an independent trustee and administer the Trust properly.
  • An unrelated Founder does not hold any benefit to the Trust or beneficiaries.
  • An unrelated Founder may be difficult to trace when there is a need to amend the Deed of Trust.

Having a related Founder may exempt a beneficiary from paying Transfer Duty in terms of Section 9(4)(b). The exemption applies when the beneficiary taking transfer is a “relative” of the Trust’s Founder (within the third degree of consanguinity) and the beneficiary does not pay any consideration (for example, rent for the residence), whether directly or indirectly.

Capital Gains Tax may nevertheless be payable. When structuring these transactions sight should not be lost of section 20B of the Transfer Duty Act which applies to transactions, operations, schemes or undertakings for obtaining an undue tax benefit.

Contributor: Chamonie Buys

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