BY MOGALE WILLAM SEKGALA 18 OCTOBER 2022
In the generals or wide sense a trust exists when property is held or administered by one person on behalf of another or for some other purpose other than his own benefit.
A trust involves three parties, namely:
- The Founder (or Donor), who is the person who creates or establishes the trust. The founder would normally donate assets to the trust in its establishment thereof.
- The trustee(s): These are the people who administer the trust and they run the day to day business of the trust as per the limits and powers conferred on them by the founder through the trust deed.
- The beneficiaries: These are the people or organisations who enjoy the benefits of the trust in line with the provisions of the trust deed.
There are generally two ways to create a trust, namely:
- By agreement: A trust created this way is called an inter vivos(during the lifetime) trust. An agreement is entered into between the Founder and the Trustees for the benefit of the beneficiaries.
- By means of a Will: This is what we call a testamentary trust. This is where a person specifies in his or her will that any benefit from his or her estate shall be kept in a trust for the benefit of his/her nominated beneficiaries. This is normally the case where the beneficiaries are still minors or are incapable of handling their own affairs. This form of a trust comes into existence after the death of the Founder.
- By Court Order: In addition to the above general/ common ways to create a trust, a trust can be created in terms of an order of the High Court. This will be the case where the Court orders that benefits due to a person who does not have the capacity to handle his own affairs be administered by a curator on his behalf.
There are generally three types of trusts, to wit:
- Bewind Trust: This is where the founder stipulates that assets of the trust will vest in the beneficiaries but that they will be administered by the trustees on behalf of the said beneficiaries. The beneficiaries are the owners of the assets and the trustees manage the assets on behalf of the beneficiaries.
- Ownership Trust: with this type of trust, ownership of the asset is transferred to the trustees to be held by them for the benefit of the beneficieries. The trustees do not own the assets for their own benefit but for the benefit of the beneficiaries. The rights of the beneficiaries are determined by the trust deed.
- Curatorship Trust: This form of trust is similar to the bewind trust above with the difference being that the beneficiary is a person who does not have the capacity to handle their own affairs.
The are further distinctions of trusts based on the type of powers conferred on the trustees, namely:
- Discretionary Trusts: This type of trust gives the trustees discretion on how to make payments, of either the capital or income, to the beneficiaries. This can be useful in the estate planning process as payment can be withheld by the trustees to avoid benefiting the beneficiaries’ creditors in the case where they have become insolvent. If the beneficiary dies the benefits would not pass to their estate as they would not have a personal right to the benefit.
- Vested Trust: in contrast in the case of investor trust, the trustees do not have the discretion in terms of the decisions they make. The trust deed determines how the beneficiaries should benefit. The trust assets and any income end vests in the beneficiaries in the beneficiaries have a personal right to claim trust benefits once setting conditions have been met. If a beneficiary dies without receiving the trust benefit that is due to them such benefit will go to that beneficiary’s deceased estate.
Some advantages of trusts:
- Preservation of assets: trust assets can be preserved by a trust so that they are not squandered by the beneficiaries. i.e preserving wealth for your family and children.
- Trusts are good vehicles for holding investments and manage wealth.
- Protection of assets from creditors.The assets are not owned by the trustees in their personal capacity or beneficiaries and the creditor therefore has no claim against them.
- Protection of assets from matrimonial property disputes.
- One can minimise estate duty as the growth of assets will no longer be under the ownership of a person (mortal) because the growth belongs to the trust.
If you require us to set up or register a trust for you, please contact us.