The concept of a Trust is over 900 years old and originates from English Law. Over time the South African Law on Trusts has been developed by the legislature, the courts and legal practitioners into what we find today.
A Trust is a separate legal entity but not a legal persona or a juristic person per se. A Trust is created by a contract called a Trust deed which is entered into by certain parties.
A Trust can be described as a legal relationship created by a person (known as the Founder), by placing assets under control of another person (known as the Trustee), during the Founders lifetime (known as an Inter Vivos Trust) or on the Founder’s death (known as a Testamentary Trust) for the benefit of third parties (the Beneficiaries).
Parties to a Trust
The parties to a Trust are the Founder, the Trustees, and the Beneficiaries.
The Founder is the person who creates the Trust and makes the initial funds available to the Trust and is also known as the “Donor” or “Settlor”. The Founder should be of majority age.
Contrary to popular belief the same person can be the Founder, Trustee and Beneficiary of a Trust, on the condition that the Trust deed is correctly structured.
The Trustees are appointed in the Trust deed and are charged with the administration of the Trust. They must comply with the Trust Property Control Act and act in accordance with the Trust deed.
A Trustee may only act on behalf of the Trust once they have received the Letters of Authority that are issued by the Master of the High Court.
Choosing the Trustees is very important. The Trustees must be persons of integrity, someone that will act with care, diligence and skill reasonably expected of a person who manages the affairs of another. A Trustee should be someone who owes the utmost good faith towards the Beneficiaries in carrying out the obligations imposed upon them by the Trust Deed.
It is very important that the Board of Trustees has a certain degree of independence and not be mere agents of the Beneficiaries or Founder.
An Independent Trustee is some-one who is not related to and arms length to the Beneficiaries. This person (or entity) should be some-one who has the necessary legal, tax and trust administration knowledge to ensure the correct administration of the Trust.
Appointing an Independent Trustee will ensure that there is indeed a clear distinction between control and enjoyment of the Trust assets, thereby protecting the integrity and efficiency of the Trust as a separate entity.
The Independent Trustee will also ensure impartiality in decisions that need be made on behalf of the Trust and can act as a mediator in the event of disputes.
Any person can be a Beneficiary of the Trust. In most instances, the Beneficiaries would be the persons that you would normally nominate to benefit from your estate in your Will.
There is also no limit to the number of Beneficiaries to the Trust. Persons other than natural persons can also be Beneficiaries such as, duly registered Trusts, juristic persons, associations, to name but a few.
It is advisable that the Beneficiaries should be discretionary Beneficiaries to the income and capital of the Trust. In such a case, the Beneficiaries shall have no rights whatsoever to claim Trust benefits as and when they please. This will also result in the assets being secure from the creditors of the Beneficiaries and cannot be taken into account as part of their estate on death.