What is a Trust?

Definition of a Trust

What is a Trust - A trust is a legal entity which holds assets (without holding ownership over them) for the benefit of trust beneficiaries. Therefore a trust arrangement represents the transfer of ownership of the assets to the Trust and control (management) of the trust assets to the Trustees from the donor (or founder).

Trustees

Trustees do not hold the trust assets in their professional or personal capacities, but for the benefit of the trust beneficiaries. 

The trustees owe, in terms of common and statute law, a fiduciary duty to the trusts beneficiaries. Trustees are required to administer the trust solely for the benefit of the trusts beneficiaries. 

A person who is deemed ineligible or disqualified by the Trust Property Control Act connot be a trustee. The Master of the High Court, Which has jurisdiction, ensures that those who should benefit from the trust do not solely control the trust. 

In regard to Family trusts, where the trustees are all beneficiaries (who are all related to one another), the Master of the High Court can insist on appointment of an independent outsider as one of the trustees. 

Trust Beneficiaries

A trust beneficiary is entitled to the benefit(s) under the trust arrangement, from the flexible or assigned rights which are determined by the trust deed. 

All trusts are required to have ascertainable beneficiaries. Trust beneficiaries are usually natural persons, although a juristic person (such as a company) may also be held as a beneficiary of a trust).  

Trust Agreements

All trusts are governed by the Trust Property Control Act of 1988. The constitutional document for a trust is called a trust deed. In this the framework in which the trust must operate (including powers and limitations), are set out. 

Trusts must be registered with the Master of the High Court (in the relevant jurisdiction) where the trust’s assets are situated. Trustees may only act once the Master has issued letters of authority allowing them to act. 

Trust Characteristics

A trust does not have a personality as it is simply an accumulation of assets. 
However, in some cases, for example, for tax purposes, it can be regarded to have a separate legal identity. 

Despite the lack of legal personality, it may have legal capacity and the trustees may perform juristic acts so long as the trust deed allows this. 

A trust may be used to hold and protect personal or business assets, especially beneficial in event of subsequent liquidation, sequestration or divorce. A trust may be used to hold shares in businesses and for ensuring continuity of ownership of assets. 

Assets may be placed in a trust by donation of assets selling of assets to a trust. Trusts are subject to income tax which is now at a rate of 40% as well as capital gains tax. 

The trusts income may be distributed to the trust beneficiaries through what is known as the conduit principle, by which the tax is only paid at the individual marginal tax rate of the recipient beneficiary. 

Subject to some limited exceptions, no estate duty will be payable by the trust on the assets transferred to a trust on the death of the transferor. 

Types of Trusts

There are two main types of trusts: 

1.    Trust between living persons (inter vivos trusts)

Created by, between and for living persons through an agreement.
Example- a family trust; an employee share ownership trust; and 

2.    Testamentary Trusts

Created in terms of a will.
Trusts can be kept in safe custody and administered or governed by a particular statute. For instance by a financial institute (Companies Act 2008 and the Financial Institutions Act 2001). 

See here for other Trust variations

Termination of a Trust 

A trust may only be terminated by:

  • Written agreement, on the date set by the founder, or 
  • Upon the achievement of the trust objective, or 
  • Upon the realisation of the impossibility of the achievement of the objective of the trust. 

On dissolution, the trust’s assets will devolve as contemplated in the trust deed.

 

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