Frequently Asked Questions
A trust is an arrangement between several people in terms of which assets are held, and often managed, by a trustworthy person or organisation on behalf of a specific group of people.
The person or organisation who holds and manages the assets on behalf of the trust is known as the trustee.
The group of people who benefits from the trust are known as the beneficiaries.
A person who has the authority to remove and appoint trustees is known as the protector.
Trusts have many purposes. In some cases, trusts are used as a way to look after families when the person who created the trust has passed away. Trusts are a wonderful tool to enable the creation and growth of a multi-generational nest egg.
An international trust is an excellent way for you to build a nest egg outside of South Africa for you and your family. The trust is not resident in South Africa so is safe from political and economic turmoil in South Africa. Building up the nest egg in the trust over time also allows you and your children to access this nest egg should you wish to move abroad or if you or your children want to study abroad or gain international work experience.
Trustees are bound under law and by fiduciary duty to only act in accordance with the trust deed and letter of wishes of the person who created the trust. They cannot do anything with the assets beyond the specific instructions set out by the letter of wishes.
The letter of wishes is a document provided by the person who creates the trust. This document sets out the specific purposes of the trusts and provides the framework for how a trust should operate.
A properly constructed letter of wishes (and trust deed) can govern the affairs of a trust for many generations.
An international trust is a trust that is formed in a different country to the country where the beneficiaries reside.
South African trusts generally only allows the trustees, on behalf of the trust, to hold South African and Rand based assets. International trusts can house assets in almost any currency almost anywhere in the world.
At Frey, we offer international trusts at very affordable rates and they are available to anyone. It would however make sense to transfer at least R2 000 per month to your international trust.
International trusts can be created within a few days – we would just require certain documents (identification documents and proof of address, among others). The trusts do not require registration.
The cost of the trust depends on its purpose. We have created trusts which are extremely affordable as they have a limited purpose (being a beneficiary of a life insurance policy and/or having a limited investment scope, for instance)
As no exchange controls apply in the location of the international trust, the international trust can have multiple accounts in different currencies, including the United States Dollar, the Euro and the British Pound.
Every time a transfer is made from South Africa to the international trust, a conversion would be required. This does however provide against potential volatility and depreciation in the value of the Rand.
In South Africa, any trustworthy person can be appointed as a trustee and this is usually someone who is part of or directly involved with a family.
In Mauritius, licences are awarded to specific professional trustees, including the trustees who Frey appoint. These trustees are closely regulated by the Financial Services Commission (FSC).
It is important that the trustees are based in the country where the trust has been created. The trustees have to exercise the effective management and control from this location. And, as indicated above, the trustees have to be licenced to carry out this function.
It is certainly possible for you to be a protector of a trust which does provide you with the means to appoint and remove trustees if you are not pleased with the manner in which they govern the trust. There are also other forms of legal recourse against the trustees should they perform any action which is not permitted by the letter of wishes and/or trust deed. Professional trustees’ licences can be revoked and civil action can also be instituted against the trustees.
Mauritius does not have any exchange controls so assets can be held in any country and in almost any currency anywhere in the world. Mauritius has a number of tax efficiencies as described in the table below:
| Mauritius | South Africa | |
|---|---|---|
| Exchange control regulations in place | No | Yes |
| Personal income tax rate | 15% (a solidarity tax is leviable on income above MUR 3 million) | 18% to 45% depending on the level of income |
| Capital gains tax for companies | Calculated as part of the company’s profits at a maximum rate of 15% | 22.40% |
| Capital gains tax for individuals | None | Depending on the level of income and linked to the personal tax rate |
| Dividends withholding tax | None (but can be subject to the solidarity tax under certain conditions) | 20.00% |
| Effective corporate tax rate on investment business | 3% | 28% |
| Donations tax | None | 20% on donations between R100,000 and R35 million and 25% on donations above R35 million |
| Inheritance tax | None | 20% estate duty |
It is very possible for a trust to be a beneficiary of a life insurance policy. Several insurance companies offer this option and it is a wonderful estate planning tool.
The beneficiaries are usually nominated when a trust deed and letter of wishes are put in place. An amendment can be carried out in the form of an addendum to the original trust deed, or an amended trust deed can be drafted to replace the original trust deed. The trustees can amend the trust deed if they receive an amended letter of wishes from the person who created the trust.
Assets that can be held in trust include land or immovable property, investments, cash, collectables or jewellery, all of which are generally referred to as the trust capital. Trusts can hold almost any type of assets.
Mauritius residency cannot be obtained through a trust. It is however possible for you and your family to obtain Mauritius residency through Mauritius companies if you invest more than USD 50 000 into your own company or if you are paid a salary of MUR 60 000 per month by a Mauritius company.
Mauritius is frequently lauded as sub-Saharan Africa’s shining example of democracy, good governance, and economic success.
Mauritius placed as the top-ranking African country in the Democracy Index 2020 (1st in Africa and 20th in the world) where South Africa ranks 45th in the world.
Mauritius has a stable system of government with a tradition of smooth transition of power, a well-functioning parliamentary democracy, a respected and independent judiciary, well-performing public institutions (including an efficient customs and port administration, particularly crucial in a small open economy), and a professional civil service.
Mauritius is the top-ranking African country in the World Bank Group’s Ease of Doing Business report and is ranked 13th globally. South Africa is ranked at number 84 globally.
Mauritius is also ranked as the top African country in the Economic Value of Peace Report (1st in Africa and 15th in the world) where South Africa ranks among the bottom 21 countries in the world.
Mauritius has a very low crime rate. Violent crime is almost unheard of.
a) Location
Flights to Mauritius from Johannesburg take less than 4 hours and South Africans do not require a VISA to visit the Island.
b) SADC
Mauritius is a member state of the South African Development Community, which has numerous benefits for businesses trading into Africa.
c) Tax treaties
There is an agreement between South Africa and Mauritius for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income.
Tax Planning – A properly established trust may produce substantial savings in income tax, capital gains tax and inheritance tax/estate duty in accordance with the allowance catered for in tax law.
No Probate – In common law jurisdictions, the need to obtain a grant of representation (probate or letters of administration) before a deceased’s estate can be wound up and distributed can cause delay, expense, unwanted publicity and upheaval.
No Forced Heirship – Many jurisdictions have incorporated ‘forced heirship’ provisions into their succession laws, which restrict an individual’s freedom to choose how their property is divided on their death and confer an automatic entitlement on certain individuals to a portion of the deceased’s estate. These individuals are known as ‘protected heirs’ and typically include the surviving spouse, children and / or other relations of the deceased. A trust can be used to overcome forced heirship claims.
Estate Planning – Many settlors prefer to make complex arrangements for the distribution of their assets. They may wish to provide a source of income for a spouse or make provision for the education of children. A trust is a very convenient and flexible method of making such arrangements.
Protecting the vulnerable – A trust allows a person to provide for those who may be unable to manage their own affairs such as infant children, the aged or persons suffering from certain illnesses.
Preserving Family Assets – Preserving family assets against mismanagement or spendthrifts is a common motivation for establishing a trust. An individual may wish to ensure that wealth accumulated over a lifetime is not dissipated or divided up but is preserved as one fund. The fund can then accumulate further with provision for payments to members of the family as necessary, preserving some assets for later generations.
Continuing a Family Business – you may wish to ensure that a business will continue after you have passed away. Transferring the company shares into a trust prior to death can prevent an unnecessary liquidation. If family members have little business experience, the trustees can be instructed to retain the shares, oversee the running of the company and provide payment to members of the family from dividend income.