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Protecting your assets and beneficiaries with a trust in South Africa: advice for expats

Protecting your assets and beneficiaries with a trust in South Africa: advice for expats

April 30, 2024


If you’re a South African expat living abroad with loved ones back home, you might be wondering how best to provide for them when you’re no longer around. This article will help you discover how setting up a trust in South Africa can safeguard your estate and assets, ensuring that your loved ones benefit fully from your hard-earned wealth. By minimising estate taxes and strategically managing asset distribution upon your passing, a trust offers vital protection and financial security for your dependents.

Let’s take a closer look at how trusts work in South Africa and why they are so important for effective estate planning.

What types of South African trusts are there?

There are two main ways to classify trusts in South Africa:

1. By when they are created:

  • Inter vivos trust: Created during someone’s lifetime.
  • Testamentary trust: Created in a will and takes effect after someone’s death.

2. By how the beneficiaries receive their benefits:

  • Vesting trust: Beneficiary automatically gets ownership of the trust assets at a specified time.
  • Discretionary trust: The trustee decides when and how beneficiaries receive the trust assets.
  • Hybrid trust: A mix of vesting and discretionary features.

There are also special trusts for specific purposes, like trusts for people with disabilities or minor children. While it is important to point out that the different classifications can overlap, it is even more important to note that all trusts must be registered with the South African Revenue Service (SARS).

How does a trust work in South Africa?

A trust can help make sure your loved ones receive the most from your estate and assets after you’re gone. It can also lower estate taxes. Let’s unpack the basics of how trusts work in South Africa.

What does a trust do in estate planning?

A trust serves various functions and plays an important role in smart estate planning, particularly for individuals who want to take advantage of estate duty or income tax benefits.

For estate planning purposes, a trust lets you:

  • Give away your assets and control of them to the trust.
  • Make sure your assets go to the people you choose, even if they pass away later. The trust document decides what happens to the assets at this point.
  • Circumvent estate taxes in certain circumstances, because a trust isn’t a person and can’t have an estate.

Why should you think about setting up a trust in South Africa?

The main reason to set up a trust in South Africa is to protect your estate and assets, keeping your family’s wealth safe for future generations, particularly during tough times like liquidation or divorce. You can also set up a trust to take care of relatives who can’t manage on their own, as a trust puts your assets in the hands of trustees who manage them for your beneficiaries after you’re gone. This provides financial security, especially if you have young children.

What are the benefits of having a trust in South Africa?

Even though setting up a trust in South Africa can get complicated, there are many benefits:

  • Your estate’s finances stay private, unlike with deceased estates that are public.
  • You could pay less in estate taxes, provided that you set up a trust in the right way. For this, it’s best to get professional advice.
  • Trusts prevent mismanagement of inheritances, which is useful if you’re worried about minors or beneficiaries who can’t manage their affairs.
  • Your assets are protected, so your loved ones can use them without worrying about creditors.
  • Your trust keeps running even if a beneficiary dies, which is not the case if you simply gave the assets to individual beneficiaries.

What problems might you face when setting up a trust in South Africa?

While setting up a trust can be beneficial, there can be several challenges:

  • You lose control over your assets because trustees manage them.
  • Costs can escalate if you pick the wrong kind of trust or don’t plan properly.
  • Your trust might be taxed at a high rate.
  • You might have to pay Capital Gains Tax on assets in the trust.
  • A trust might not work for everyone involved, so it’s important to talk to an expert to figure out what’s best for your estate.

Interested in reading more about how trusts work in South Africa?

We’ve put together a helpful selection of our articles on the topic –

  1. How can an offshore trust protect your assets? What South Africans need to know
  2. Updates to the rules on transfer of income and capital distributions from inter vivos trusts.
  3. The facts about testamentary trusts in South Africa with offshore beneficiaries.
  4. Offshore trusts for South Africans: a guide to five key considerations.
  5. Can a South African trust make a capital distribution to an offshore trust? The answer might surprise you.

FinGlobal: cross-border financial specialists for South African expats

Managing your financial affairs in more than one country can get tricky, particularly where there are international money transfers and taxes involved. That’s where FinGlobal can step in and make your life easier. Our team of specialists is ready to assist you with every aspect of your expat financial portfolio, offering sound, reliable advice. You can trust us for help with tax emigration, tax refunds, retirement annuity withdrawals, international transfers and more.

To see how FinGlobal’s services can simplify your life, reduce your stress and minimise your worries, simply leave your contact details below and we’ll be in touch to discuss your needs.

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