A trust is a legal contract which is lodged with the Master of the High Court.
Upon lodgement the master will issue the trustees with an IT or trust number.
Three parties are involved in a trust:
- the donor;
- the trustees; and
- the beneficiaries;
Without these three parties a trust cannot be formed or be valid.
The trustees are appointed by the donor, and they undertake to manage the trust in accordance with the trust deed and to the benefit of the beneficiaries.
Trusts are usually referred to as family, personal or business trusts. In actual fact no such difference exists as the only difference between these types of trusts is the wording of the Trust Deed.
Inter vivos (living trust)
An inter vivos trust is formed by the donor during his or her life.
An inter vivos trust is used by the donor to actively manage certain affairs which he/she deems to be best handled in the structure of a trust.
One such example may be to limit the capital appreciation of an asset in your own name and ensure that it is not included in your estate.
If you for instance bought an investment property in the name of a trust, the property will never form part of your estate and you will not pay any Estate Duties on it.
Inter vivos trusts are also used to lessen the risk of entrepreneurs.
As entrepreneurs are usually required to sign surety, the only way to ensure that your assets are not at risk is to register them in a trust.
Mortis causa trust
A mortis causa trust is formed at death.
Should your last will state that certain assets should be transferred to a trust upon death, your executor will ensure that a trust is formed and the indicted assets are legally transferred.
The trust deed will then be worded in order to ensure that your last will be reflected.
The trustees will also act in accordance with the trust deed to ensure that your will is being adhered to.
Flexibility
A trust is not a flexible legal structure and it is not advisable to use for doing business.
If for instance you want to use a trust to operate a business, all trustees must always sign the relevant documents as compared to a company where you can only have one representative signing.
Another issue to consider is the fact that once you have nominated your beneficiaries and at least one distribution has been made to them, you will not be allowed to alter or change these beneficiaries.
If you alter the beneficiaries you can adversely affect their rights.
The trust deed
The main idea of a trust deed is to determine whether the beneficiaries have vesting or discretionary rights to either the trust capital or income or both.
The trust deed can also place restrictions on that which the trustees are allowed to do.
Limitations can also be placed on the normal operations of a trust to ensure that it is operated and managed as intended by the donor.
The trust deed is similar to the Memorandum of Incorporation as in the case of a company as it dictates how the trust should be managed and operated.
SOURCES :
Cronje & Cronje
Business Partners
