Securing peace of mind

A trust is formed when a person known as a founder or donor formalises a written document, in terms of which he/she agrees to transfer certain assets to the trust. This takes the control and rights to administer the assets from the founder and places them in the purview of the trustees.

The trustees do this in accordance with the trust deed. The trust deed is a written document in terms of which a trust is formed. It determines which assets are to be accumulated in the trust and the liabilities that will flow from them. The deed also states the number of trustees, their means of appointment and the circumstances under which they can bind the trust.

A trust deed creates or defines the aims and objectives of the trust and will contain details of the beneficiaries who will be entitled to receive income and/or capital from the trust.

The trustees are obliged to exercise their powers and duties as defined in the founding document for the benefit of such beneficiaries.

A trust is thus a collection of assets and liabilities. The assets and liabilities in the trust are administered by nominated trustees for the benefit of identified beneficiaries. A trust itself does not have a legal personality.

There are two types of trusts, inter vivos or living trusts and testamentary trusts, also known as trusts mortis causa.

An inter vivos trust is formed whilst the founder is still alive. These trusts are mainly formed to protect assets or when a cause is identified and/or founded and assets are donated to the cause or as part of the cause and these assets need to be administered.

A testamentary trust is created in terms of the will of a deceased person. The trust only becomes active on the death of the testator. The testator  bequeaths assets to the trustees in his will and also uses the will to set out terms and conditions which apply to the trust.

The most common example of this type of trust is one where the testator has stipulated in his/her will that any inheritance which is due to a child under a certain age should be held in trust until they reach the stipulated age.

A trust, regardless of form, needs to be lodged with the Master of the High Court. If the Master is satisfied that everything is in accordance with the requirements,  he will issue a document known as a letter of authority, in terms of which the trustees of the trust are named. Only once these documents are in place do the trustees have legal standing to administer the affairs of the trust.

Trusts are complex legal tools and the establishment and administration of them should not be undertaken without getting professional advice. Trusts have important legal and tax implications which you should be aware of before dealing with a trust.

What happens if a trustee dies or resigns? 

The letter of authority must be returned to the Master of the High Court and depending on the terms of the trust deed, another trustee may need to be appointed.

Who can be appointed trustees?

Anybody who has attained the age of 18 can be a trustee. The trust deed often specifically excludes certain persons or classes of persons from being trustees, for example unrehabilitated insolvents, persons of unsound mind and persons disqualified in terms of the Companies Act from being a director of a company.

Why would I set up a trust?

The most common reasons for setting up a trust are:

1. To protect assets for minor children or other beneficiaries in the event of your death.

2. To reduce the amount of estate duty which may be payable by your estate upon your death.

3. To protect your assets in the event of your insolvency.

4. To administer assets for charitable purposes.

What are the disadvantages of setting up a trust? 

The costs of setting up a trust can be inhibitive because it requires a legal or professional advisor to assist you and the Capital Gains Tax could be high. Also, once the assets have been donated / ceded to the trust, the donor loses their rights and entitlement to the assets.

Written by Charles Bailie

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