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South African living abroad? Here’s what you need to know if you’re the beneficiary of a family trust. Family trusts are popular financial vehicles for parents to ensure their loved ones are cared for long after they’ve passed away. However, life has a way of changing and trusts are not known for their flexibility. As more South Africans spread their wings in search of global opportunities, their financial circumstances change. Once they’ve left home and settled abroad, the question often arises: how can I access the money I’ve left behind? Answering this question can be complicated, especially if there’s a family trust involved.

What is a family trust?

A family trust is a trust in which the parties are all closely related. There are two ways that a family trust is usually created:

  • Inter vivos trust: which is created during the lifetime of a person, by a trust deed; or
  • Testamentary trust: created in terms of a person’s will and comes into effect after death.

Family trusts are usually classified in terms of the rights they give you as a beneficiary:

  • Vesting trust: As a beneficiary, you have a vested rights to the income (both revenue or capital) or assets of the trust.
  • Discretionary trust: As a beneficiary, how much (if any) of the income, assets or net trust capital is to be distributed to you, is at the discretion of the trustees. Your right to the proceeds of the trust are contingent.

If you live or work overseas and you’ve left your family trust behind in South Africa, you’ll need to give some thought as to your tax resident status as this will affect how exchange control regulations impact you if you are the beneficiary of a family trust. This requires some foresight and planning, in order to avoid the risk that payments due to you from a trust source cannot be executed without making retrospective application to the Reserve Bank, especially because there’s no guarantee that the required approval will be granted.

What are your options as the beneficiary of a family trust living abroad?

If you have your South African green barcoded ID book or smartcard, you can still benefit from the trust fund on an on-going basis provided the funds you wish to transfer fall within your regulatory annual allowances.  There are two allowances you can use as an individual to transfer up to R11 million out of the country on an annual basis:

  • Your standard discretionary allowance of R1 million; and
  • Foreign Investment allowance of R10 million, for which a tax clearance certificate is required.

If the proceeds from your family trust is likely to be more than this amount, there is the option of requesting a special allowance. While each application is considered on its merits it does require SARS to perform a full tax audit on you, the trust and any of its linked entities before a tax clearance can be issued.  If your annual allowances are insufficient to transfer the trust distributions, or if you expect distributions in perpetuity, it could be worth your while investigating when your family trust terminates, and then considering financial emigration.

So, when does a family trust terminate?

Whether a testamentary or inter vivos trust, trusts do not merely terminate because of disuse, and continue to exist in perpetuity because the Trust Property Control Act (57 of 1988) which governs the operation of trusts in South Africa, does not explicitly state how and when a trust is deemed to be terminated. This does not prevent any trust from being terminated, and there are a number of events that might take place during the lifetime of the founder, trustees or beneficiaries of a trust which could provide the grounds for the termination of a trust.

When considering the termination of an inter vivos family trust, the first step will always be to turn to the provisions of the trust deed. Some of the most common provisions encountered in trust deeds for termination:

  • Once all trust assets have been distributed to beneficiaries (in other words, there’s nothing left to give).
  • After a certain period of time or upon the occurrence of a specific event (after 50 years or upon the marriage of the last beneficiary).
  • At the discretion of the trustees and/or via beneficiary resolution (the trustees decided to terminate or the beneficiaries agreed to pass a motion to do so).
  • Once the primary objective has been achieved (for example, all beneficiaries have graduated successfully from university).
  • In the event that it is no longer possible to achieve its primary objective.

In the event that the beneficiaries (or even trustees) need to terminate a trust for a reason that is not provided in the trust deed, it would be necessary to approach the High Court with a termination request in terms of the Trust Property Control Act. Each case is considered on its own merits by the court, and some of the reasons why a termination might be justified include:

  • It has become uneconomical to manage the trust for the beneficiaries or there is insufficient value in the trust.
  • The relationship between the beneficiaries and trustees has deteriorated to the point where trust management has become impossible
  • More than two-thirds of the beneficiaries no longer reside in South Africa.

What happens once the family trust is terminated?

All assets must be formally distributed to the beneficiaries in accordance with the trust deed provisions. Once all liabilities have been settled – including any tax owing to SARS, the trust assets can be distributed to the beneficiaries. Bear in mind that for any capital distribution from a trust, that a special application must be submitted to SARB for approval, which requires a South African green barcoded ID or smartcard.

If you do not have this document, the only way to get your trust distributions out of South Africa will be to apply to both SARS and the South African Reserve Bank (SARB) to approve your application for financial emigration. If you are a beneficiary of a trust, SARB will consider whether the funder (not donor) is still alive at the date of emigration application and whether such person is the applicant or not. They will also consider the beneficiaries and their respective emigration status, as well as the nature of the funds distributed, whether income or capital.

What is financial emigration?

It’s simply an agreement between yourself and SARB that sees your status change from resident to non-resident, for exchange control purposes. It does not affect your South African birthrights, citizenship or passport rights.

As a financial emigrant you may transfer offshore:

  • Your retirement annuity proceeds even before retirement
  • Your South African source inheritance or proceeds from a third-party life policy
  • The proceeds of the assets declared in your emigration application
  • Your passive income such as rental, dividends, director’s fees, salary for services rendered in SA and trust income.

Making the decision to financially emigrate is a big step, but one that’s reasonably straightforward. Where it does get complicated by circumstances like family trusts, it’s advisable to seek advice from the financial emigration and cross-border financial planning professionals, like FinGlobal. This will ensure that all aspects of your tax liability (both in South Africa and your new resident country) are properly considered and planned for.

Don’t let trust issues overwhelm you, call in the experts to handle it for you

At FinGlobal, we offer the full suite of financial services for South African emigrants, all of which add up to optimal payouts within a shorter time frame than other providers. We also offer more favourable exchange rates than commercial banks, and because we’re a licensed financial services provider and SARB approved foreign exchange intermediary, you can be assured that everything we do for you is above board and compliant. Best of all, you’ll have access to our superior in-house expertise, with certified international financial planners, lawyers, chartered accountants, tax specialists and bankers providing specialist advice in all areas of cross-border finance to our clients. If you’re interested in wrapping up your financial affairs in South Africa, we’re waiting to help you assess your requirements and objectives and draw up your free Financial Emigration Plan™.Contact us today!

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