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A Special Trust as part of your Estate

 
 
 
 
A special trust is a trust created solely for the benefit of a person who suffers from a mental illness (as defined in The Mental Health Act), or, a person who suffers from any serious physical disability.
This is known as a Type A Special Trust and has the following requirements:

 

           The trustees may not have the discretion to pay income or capital to any other person whilst the qualifying       beneficiary is still alive.

           A qualifying person must as a result of the physical or mental disability not be able to manage his own financial affairs, or, if over the age of 18, not be able to provide for his own maintenance; and

           The person must be alive on the last day of February of the relevant year of assessment - the trust will not qualify to receive the favourable tax treatment in the year that the qualifying person dies, and it will instead be taxed as a normal trust.

           SARS must approve the trust deed as a Special Trust Type A and will register it accordingly.

Creating a Special Trust in your Will

 

In 2003, a second category of special trust, Type B, was recognised with the following requirements:

 

           A trust created in terms of the will of a deceased person,

           Solely for the benefit of trust beneficiaries who are relatives of the deceased,

           And, where the youngest beneficiary has not yet reached the age of 21 years on the last day of February in a year of assessment - the trust will be taxed as a normal trust in the year in which the youngest beneficiary turns 21.

           The trust beneficiaries must all be alive at the date of the death of the deceased - an unborn child may, however, also benefit.

           A relative includes the spouse or anyone related to the deceased or his spouse within the 3rd degree of consanguinity, and includes an adopted child.

           Each year the financial officer will submit the return to SARS confirming that the trust qualifies as a Type B Special Trust and request that it be taxed accordingly.

 

What are the tax consequences of Special Trusts:

 

           All the income tax provisions that relate to trusts in general, apply to special trusts as well.

           A special trust is taxed according to the rates applicable to natural persons (18% - 40%).

           Exemptions and rebates applicable to natural persons are not applicable to special trusts.

           Section 10A of the Income Tax Act, which allows the capital element of voluntary purchased annuity (VPA) to be exempt from tax, applies to Type A Special Trusts only.

           The following CGT inclusions and exclusions applicable to individuals, also apply to special trusts:

o          The annual exclusion of R20 000.

o          Inclusion rate of 25%.

o          R1.5 million primary residence exclusion, and R2 million exclusion.

o          Personal use assets excluded.

o          Compensation for personal injury, illness or defamation of the trust beneficiary.

o          On the death of the trust beneficiary, for CGT purposes only, the status of the trust as a special trust is preserved until the earlier of the disposal of all the assets held by the trust or two years after the date of death of the beneficiary. 
 

Recommendation

 
It is advisable to contact us to establish if such a trust should be established and if life cover on the caregivers of a ill person is required for the financial situation the illperson can find him/her self in.
 

 

 
 
 
 
Address: 697 Amandelboomroad, Pretoria
 
FSB at www.fsp.co.za: 25405