I trust you are all well. (Excuse the pun). The first time I heard about a Trust, I thought it had something to do with leaving your youngest daughter alone with the neighbor’s teenage son and “trusting” they were only going to watch the Disney channel. When I heard about an Inter Vivos Trust, I was floored and went to the Doctor to have my cholesterol checked.
With this article I will attempt to summarize the different Trust structures and what they are all about and hopefully not confuse you too much.
Trusts are normally created through clauses in a will referring to a Trust which is known as a Testamentary Trust or an agreement in writing between the founder/donor and the first trustees during the founder’s lifetime, known as the Inter Vivos trust. The latter agreement is also known as a Trust Deed. A Trust is controlled by the trustees each having equal voting rights. They make decisions on behalf of the Trust and must always conduct business in accordance with the provisions of the Will and/or Trust Deed and the Trust Property Control Act.
Testamentary trust (mortis causa)
Testamentary trusts are the most common trusts in use. They are suited to the protection of the interest of minors and other dependants who are not able to look after their own affairs. These types of trusts come into being only after the death of the testator and in accordance with the Will.
The trust is administered by trustees appointed in terms of the Will this usually ends after a predetermined period or at a determined event like a minor turning 18 or the death of an income beneficiary.
A testamentary trust may further be both a discretionary or vested trust.
- Discretionary trust
The payment of income or capital is subject to the discretion of the Trustees. All non-allocated income is taxable in the hands of the Trust. This type of trust may thus be utilized to save on income tax by splitting income amongst Beneficiaries.( Capital beneficiaries need only be determined at a later stage if required)
- Vested trust
The income and capital beneficiaries will already be determined and described. The income would be taxable in the hands of the Income Beneficiary, who could also be the Capital Beneficiary. The Capital Beneficiary thus gets immediate property rights according to the terms of the will or trust act.
Living trust (inter vivos)
Living Trusts are a superb medium for keeping growth assets out of an estate and to limit estate duty, protecting assets from generation to generation. A living or inter vivos trust comes into being during the lifetime of the settlor or founder with the signing and registration of a trust.
A living trust is formed by the founder/settlor who takes the initiative to create a trust and is an arrangement between the founder/settlor and the trustees.
After signature of the Trust Deed, the Trust is registered with the Master of the Supreme Court in whose jurisdiction most of the assets are situated.
The interested parties in a living trust are the beneficiaries or person who, in terms of the trust act, is entitled to the income and/or capital of the trust, the founder/settlor, the trustees and the persons or company appointed to take control over the assets to take responsibility for the administration and management thereof.
A living trust can take several forms and in Part 2 we will discuss these in a bit more detail:
- Family trust
- Charitable trust
- Umbrella trust
- Guardian’s trust
- Special trusts
Just a note of caution…. The discussions held in these essays are of a general nature. When you have special needs, it is always advisable to get in touch with reputable Lawyers to cater for specific requirements. Remember you are catering for future generations in your legacy which will be affected if the Trusts are not set up correctly.
Next time round I will be looking at the above in more depth and discussing why Trusts are formed with specific emphasis on property.
“Trust” you have a wonderful day.
…To part 2