Forming a Trust

Forming a Trust in South Africa: A Complete Legal Guide

What Does Forming a Trust Mean?

Forming a trust in South Africa involves the legal creation of a relationship where property is transferred by a person (the founder) to one or more trustees, to be administered for the benefit of specific individuals (beneficiaries) or for a charitable purpose. This relationship is governed by the terms of a written agreement, commonly referred to as a trust deed. South African trust law is rooted in both common law and statutory provisions, especially the Trust Property Control Act 57 of 1988.

The primary legislative authority governing the process of forming a trust is the Trust Property Control Act, alongside various judicial precedents. Trusts are often created for asset protection, estate planning, continuity of wealth, and even for philanthropic reasons.

The Legal Framework for Forming a Trust

The foundation of trust law in South Africa lies in the Trust Property Control Act 57 of 1988 (“the TPCA”). This Act places strict obligations on trustees and provides the Master of the High Court with oversight powers.

In Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA), the Supreme Court of Appeal reinforced the principle that trustees must act strictly in accordance with the trust deed, as they carry a fiduciary duty to the trust and its beneficiaries.

The South African common law, enriched by Roman-Dutch principles, further underpins this framework, with judges frequently referencing texts such as Honoré’s South African Law of Trusts.

Types of Trusts in South Africa

South African trust law recognises two primary categories of trusts: inter vivos trusts and testamentary trusts.

Inter Vivos Trusts: Living Trusts

An inter vivos trust is created during the lifetime of the founder through a trust deed. This is the most common type of trust used for wealth preservation, family business structuring, and asset protection.

For an inter vivos trust setup guide, the following steps are essential:

• Drafting a compliant trust deed

• Appointing competent trustees

• Registering the trust with the Master of the High Court

• Obtaining a trust number and letter of authority

The decision in Thorpe v Trittenwein 2007 (2) SA 172 (SCA) highlights that inter vivos trusts must be managed strictly per the stipulations of the deed, and beneficiaries have enforceable rights.

Testamentary Trusts

A testamentary trust is created through a will and only comes into effect after the death of the testator. These are commonly used to safeguard the interests of minor children or dependents.

Unlike inter vivos trusts, testamentary trusts are regulated under the Administration of Estates Act 66 of 1965 as part of the deceased estate process.

South African Trust Deed Requirements

The trust deed is the cornerstone of forming a trust. It must clearly articulate:

• The name and objective of the trust

• Details of the founder, trustees, and beneficiaries

• Powers and duties of trustees

• Terms governing trust administration and amendment

According to Section 6(1) of the TPCA, trustees may only act once authorised by the Master. The case Hoosen v Deedat 1999 (4) SA 425 (SCA) reaffirmed that any action taken by trustees before receiving this authority is void ab initio.

A well-drafted trust deed also ensures tax compliance and proper fiduciary governance, mitigating future disputes among beneficiaries.

How to Register a Trust in South Africa

The process of registering a trust involves several formalities:

1. Drafting the Deed: Ensure the trust deed satisfies all legal requirements and includes enforceable provisions.

2. Submission to the Master: Documents to be lodged include the trust deed, acceptance of trusteeship, certified ID copies, and an affidavit by the founder.

3. Issue of Letter of Authority: Upon approval, the Master issues a Letter of Authority, conferring legal power to act on the trustees.

This process is governed by Regulation 3 of the Trust Property Control Act Regulations, and oversight is maintained by the Master’s Office in the jurisdiction where the majority of the trust’s assets are located.

Appointing Trustees in South Africa

The role of a trustee is critical in the administration of trusts. Trustees owe fiduciary duties to the trust and its beneficiaries, including a duty of care, impartiality, and accountability.

In the landmark case Gowar v Gowar 2016 (5) SA 225 (SCA), the court emphasized that a trustee who fails in their fiduciary obligations may be removed, even absent wrongdoing, if their conduct threatens the functioning of the trust.

When appointing trustees in South Africa, the following considerations apply:

• Trustees must formally accept office in writing (Section 6(1) TPCA)

• All trustees must act jointly unless the deed allows delegation

• Trustees may not act without the Master’s letter of authority

Beneficiaries may seek judicial relief if trustees breach their duties under Section 20 of the TPCA.

Legal Implications of the Trust Deed

The trust deed not only governs the operation of the trust but also creates binding obligations. Mismanagement or deviation can result in piercing the trust veil, particularly where trusts are abused to evade liabilities (WT and Others v KT 2015 (3) SA 574 (SCA)).

Further, Section 11 of the TPCA provides that trustees must keep accounting records, and Section 10 allows the Master to call for such records, ensuring transparency.

Tax implications are also governed by the Income Tax Act 58 of 1962, where trusts may be taxed at a flat rate of 45%, unless income is vested in beneficiaries (Section 25B).

Benefits of South African Trusts

Forming a trust in South Africa presents numerous advantages:

• Estate planning: Assets in trusts do not form part of the deceased estate, avoiding estate duty (currently 20-25% under the Estate Duty Act 45 of 1955).

• Asset protection: Trust assets are insulated from creditors of beneficiaries or the founder.

• Continuity: Trusts endure beyond the founder’s death.

• Confidentiality: Trust assets are privately administered.

• Tax planning: Beneficiary income-splitting and capital gains management.

However, the South African Revenue Service (SARS) has tightened oversight on trust arrangements, and all trusts must now submit annual returns using the ITR12T form.

FAQ: Forming a Trust in South Africa

What is the cost of forming a trust in South Africa?
Costs vary based on the complexity of the deed and whether legal advice is sought. Expect to pay between R4,000–R10,000.

How long does it take to register a trust?
The Master’s Office generally processes trust registrations within 4 to 6 weeks.

Can a single person be both trustee and beneficiary?
Yes, but one individual cannot be the sole trustee and sole beneficiary (Estate Kemp v McDonald’s Trustee 1915 AD 491).

Do I need a lawyer to draft the deed?
While not mandatory, legal advice ensures compliance with the TPCA and SARS requirements.

Are trust deeds public documents?
Trust deeds are lodged with the Master and are not publicly available unless court proceedings disclose them.

Can I change a trust deed later?
Only if the deed allows amendments and all trustees and beneficiaries consent (or the court authorizes it).

Are trusts taxed differently than individuals?
Yes. Trusts are taxed at a flat 45%, but income distributed to beneficiaries is taxed in their hands (Section 25B, Income Tax Act).

What happens to the trust if the founder dies?
Nothing changes legally; trusts are separate legal entities and continue post the founder’s death.

Can a trust own a business?
Yes, many family businesses are operated through trusts for asset protection and continuity.

Is forming a trust suitable for everyone?
No. Trusts require diligent administration and may not be cost-effective for small estates.

References Table

• South African Revenue Service (SARS) – Trusts Tax Information
  Explains how trusts are taxed and compliance duties including the ITR12T return.

• Department of Justice – Trust Registration Process
  Provides official guidance on how to register a trust in South Africa through the Master’s Office.

• University of Pretoria: Centre for Advanced Trust Law
  Academic research and resources on evolving jurisprudence relating to trusts.

If you would like to know more about establishing property trusts, specifically click here. 

For Ante-nuptial contracts click here.

For Post-nuptial contracts click here. 

For the Post-nuptial execution of an Ante-nuptial contract click here. 

For estate planning in general click here. 

For legal restrictions in wills click here.

If you would like to know more about power of attorneys click here.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for errors, omissions, loss, or damage arising from reliance upon any information herein. Don’t hesitate to contact Meyer and Partners Attorneys Incorporated if you require further information or specific and detailed advice. Errors and omissions excepted (E&E).

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