Trust funds are paid or applied for beneficiaries in accordance with the trust deed and a valid trustee decision. In a discretionary trust, a beneficiary does not usually have an automatic right to a payment. The trustees must exercise the discretion given to them by the deed, comply with the required decision-making process and properly record the resolution.
A trust benefit can take different forms. It may be a cash payment, the vesting or transfer of an asset, payment of an expense for a beneficiary, or the granting of a right to use trust property. The tax event does not always depend on when cash is physically paid. For income tax purposes, the time at which an amount vests and the identity and tax residence of the beneficiary can be critical.
Qualifying income vested in a resident beneficiary may in some circumstances be taxed in that beneficiary under the flow-through rules, subject to sections 7 and 25B. Capital gains are governed separately by the Eighth Schedule and have their own vesting rules. Since 1 March 2025, the flow-through rules for trust amounts have been limited to resident beneficiaries, with corresponding rules for capital gains. The trustees should therefore consider both the trust deed and current SARS rules before deciding how and when distributions are made.
See also: Can you withdraw money from a family trust? | What is the tax rate for an inter vivos trust? | Who is the beneficiary of an inter vivos trust?
Disclaimer: The information provided here is intended as general guidance only and does not constitute legal, tax, or financial advice. Every situation is unique, and legislation is subject to change. We invite you to reach out to our team at Wealth and Legacy Group for guidance tailored to your specific circumstances.