What makes a special trust so special?

22 May 2015 ,  Corné Nunns 1109
Special trusts refers to a kind of trust created for  people with special needs, i.e. individuals who have a serious mental or physical disability, and who are not able to provide for themselves financially (this is the so-called "type-A" special trusts). The Income Tax Act makes provision for the creation of these kind of special trusts but also for the so-called "type-B trusts" which are trusts created in a will of a deceased person for the benefit of the relatives of the deceased person and who are alive on date of death of the deceased person (including any beneficiary who has been conceived but not yet born on that date), where the youngest of those beneficiaries is on the last day of the year of assessment of that trust under the age of 18 years. For purposes of this article we will concentrate on the "type-A" special trust.

WHAT ARE SO SPECIAL ABOUT A SPECIAL TRUST?

This kind of trust enjoys special tax benefits that are not available to ordinary family trusts. For example, the special trust is taxed in the same way as a natural person, i.e. it is liable for income tax according to the amount of income it earns during a financial year and not at the fixed rate of 41% like ordinary trusts. BUT MORE IMPORTANT the special trust provides the parents of such a special person with peace of mind that their child will be cared for when they are no longer around to provide care and financial assistance themselves. By creating a special trust the parents can determine who the trustees of the trust will be which will be responsible for the financial needs of such a special person. The assets or funds in the trust will also be protected against any vultures who might want to lay their claws on such a special person's money.

WHO QUALIFIES AS A SPECIAL PERSON?

The special person must have a disability which is a moderate to severe limitation on his/her ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment which limitation has lasted (or is going to last) more than a year and is diagnosed by a duly registered medical practitioner. Such disability must also incapacitate him/her from earning sufficient income for his/her maintenance or from managing his/her own financial affairs.

HOW DO I CREATE A SPECIAL TRUST?

A special trust can be created during your lifetime (inter vivos) or in your will (as a testamentary trust). It is important that the trust deed is drafted correctly by meeting all the requirements stipulated in the Income Tax Act and therefore an advisor who specialised in Trust Law should assist you in this regard. Kindly contact Prof Willie van der Westhuizen or Corné Nunns at Millers for more information.
Tags: Trust
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