For 60 plussers, retirement often brings the opportunity to give back to the community. If you are considering leaving a lasting legacy, establishing a charitable trust can be a meaningful and impactful way to support public causes. Beyond helping others, charitable trusts offer benefits such as asset protection and tax advantages. This guide explains the advantages and process of setting up a charitable trust in South Africa, and ensuring your contributions make a difference.
What is a Charitable Trust?
A charitable trust is a legal entity that manages assets for public-benefit purposes. It is primarily governed by the Trust Property Control Act, 1988 and may also need to comply with the Income Tax Act to receive tax-exempt status. Many charitable trusts also seek Public Benefit Organisation (PBO) status from the South African Revenue Service (SARS) to access tax benefits.
For retirees, this can be a way to allocate part of your estate to causes you deeply care about, creating a legacy of generosity that extends beyond your lifetime.
Step-by-Step: Setting Up a Charitable Trust
Formation and Purpose
The journey begins with defining your charitable goals. A trust is established when you, as the founder (settlor), donate assets to the trust. These could include cash, property, or investments. Trustees, appointed to manage the trust, must adhere to its objectives as outlined in the trust deed—a legal document detailing the trust’s purpose and operations.
For example, focus areas could include:
Education: Scholarships or literacy programs.
Healthcare: Supporting clinics or mental health initiatives.
Environment: Conservation of wildlife or natural resources.
The trust deed must clearly describe the public benefit activities (PBAs) it will undertake.
Registration and Legal Compliance
Your trust must be registered with the Master of the High Court, who ensures its lawful operation. Here are some key requirements:
Trustees: A minimum of three trustees is mandatory. To ensure impartiality, they cannot all be closely related.
Transparency: Trustees must manage trust assets responsibly and solely for the stated purposes.
Applying for PBO Status
To enjoy tax exemptions, the trust should apply for PBO status under Section 30 of the Income Tax Act. PBOs cannot distribute funds for personal benefit, and upon dissolution, remaining assets must be transferred to another PBO or qualifying entity.
To apply for PBO status, the trust must:
- Complete and submit the EI 1 application form to the SARS Tax Exemption Unit (TEU).
- Include the trust deed and supporting documents.
- Obtain SARS approval and a unique PBO reference number.
Obtaining Section 18A Status
Donations made to approved PBOs may qualify for tax deductions under Section 18A the Income Tax Act 1962, encouraging philanthropy. This is particularly beneficial if your trust aims to attract donations from others, and is therefore important that an organisation obtains the 18A approval from SARS.
Section 18A approval requires that the trust’s activities align with specific PBAs listed in the Ninth Schedule of the Income Tax Act, such as:
Welfare: Assisting the elderly or providing poverty relief.
Healthcare: Supporting hospitals or providing medical equipment.
Environmental Conservation: Protecting endangered species or preserving forests.
Special Considerations for Over-60s
Why Create a Charitable Trust?
For many retirees, establishing a trust is a way to preserve wealth while supporting causes close to their hearts. Trusts also allow you to involve family members as trustees, fostering intergenerational engagement in philanthropy.
Tax Benefits
PBO’s are exempt from income tax, donations tax, and capital gains tax, protecting your assets while maximizing their impact.
Legacy Planning
If you’re passionate about a particular cause—be it education, healthcare, or wildlife conservation—a charitable trust can ensure that your values are upheld and your resources are used effectively after you’re gone.
Governance and Accountability
Trustees must follow the trust deed’s provisions and report annually to the Master of the High Court. For PBOs, SARS also requires:
- Financial transparency through annual reports.
- Compliance with conditions outlined in the Ninth Schedule.
- Assurance that funds are not used for personal gain or political activities.
How Wildlife Conservation Trusts Operate
Many over-60s are passionate about preserving South Africa’s natural beauty. Trusts focused on wildlife conservation must comply with specific conditions under the Ninth Schedule. For instance, funds must directly support activities such as protecting endangered species or rehabilitating ecosystems.
SARS also requires that these trusts operate altruistically and align strictly with approved PBAs.
Advantages of a Charitable Trust
Impact: Direct your wealth toward meaningful causes.
Tax Relief: Enjoy exemptions and encourage donations from others.
Asset Protection: Safeguard your assets while supporting public good.
Conclusion
For retirees seeking to create a legacy of generosity, a charitable trust offers a structured, impactful, and tax-efficient way to give back. By aligning your trust with South Africa’s legal framework, you can ensure that your contributions make a lasting difference in the lives of others while benefiting from peace of mind and financial security.
If you’re ready to take this step and explore it further, consider consulting with our legal team to guide you through the process and ensure your trust achieves its intended goals.
FOR ENQUIRIES:
Meyer de Waal
MDW INC meyer@mdwinc.co.za
021 461 0065 & 083 653 6975
Jan Pretorius
jan@perpetualservices.co.za
082 889 4000
Daniela Papa
daniela@mdwinc.co.za
021 461 0065 & 083 783 8494
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