Setting up a trust is aptly a trusted way to secure inheritance for the benefit of beneficiaries.
A trust can be described as either an inter vivos trust (living trust) which is set up during the life time of the trust founder, or a testamentary trust whose set up is provided for in a will, to be set up when the testator passes away.
The set-up processes of these differ, but the purpose is fundamentally the same, to secure the inheritance of the beneficiaries or other purpose.
Other trusts are set up for such purposes as trading trusts, asset protection trusts, charitable trusts as well as special trusts.
Questions arise as to what happens when a beneficiary passes on before the inheritance vests? This fundamentally rests on what type the trust is:
Firstly, there is the Ownership Trust where the trust founder transfers ownership of assets to trustees, to be held for the benefit of the beneficiaries.
The point of departure would be whether the inheritance had vested in the beneficiary or not. If not, the trust deed must provide for what happens to the inheritance which was to vest to the deceased beneficiary at a future date or event. The Trust Deed could provide that the inheritance must be retained by the trust for the benefit of the remaining beneficiaries, substitution of the beneficiary, or otherwise as per other wish of the trust founder.
The decisions of the trust are made by the trustees who are nominated by the trust founder. The trust deed prescribes how trustees conduct the affairs of the trust, are removed, resign and how the trustees account to the beneficiaries.
The Trust Property Control Act 57 of 1988 also contains legislative provisions on how trust property is managed.
Secondly, there is the Bewind Trust whereby assets are transferred to the beneficiaries, but control thereof is retained by the trustees.
In this instance, the assets are owned by the beneficiaries and therefore will form part of the beneficiary’s estate should they die.
The inheritance interest/stake will therefore pass to the descendents of the deceased beneficiary under the normal succession or testamentary provisions. It is essential therefore that the beneficiary has their own Will. This will help avoid the unforeseen which can sometimes defeat the purpose of such trust especially when assets are inherited by parties who were not intended for by the trust founder.
The third type of trust is a trust administered by a trustee as curator for the benefit of a beneficiary who does not have the capacity to manage their own affairs. For purposes of this article this will not be discussed.
It is critical therefore that when planning an estate, the trust deed or the will caters for unforeseen possibilities with regards to death of beneficiaries without wills, tax implications and other such unexpected changes in circumstances. These may cause serious problems if left unprepared for.
Discussing the best option of a trust with an estate planner or one of our trust lawyers as well as the options of possible trustees for a family trust when doing estate planning is strongly recommended.
Subscribe to our Newsletter
Estate Agent Training
Bond & Transfer Calculator
Get the latest updates in your email box automatically.