A common misconception is that a Trust structure is a tool for only the wealthiest members of society. The Trust is a vehicle which can be used to acquire and preserve growth assets, and to transfer the benefit of wealth as a legacy for the benefit of current and future generations. The Trust structure is an essential tool in the Estate Planning exercise and its utility applies to all persons who have embarked on a journey of wealth accumulation. This article briefly considers five foundational principles which apply to the inter vivos or “living” discretionary Trust.
Common Law Contract – Trust Deed
In its simplest form, a Trust is a common law contract – a written Trust Deed entered into between the Founder and the Trustees. The Founder makes an initial donation to the Trustees who take control of the Trust property and manage the Trust affairs for the benefit of the Trust Beneficiaries. The Trustees must act in accordance with the rights, obligations, limitations and procedures prescribed by the Trust Deed read with the provisions of the Trust Property Control Act 57 of 1988.
Contractual Nexus – the Parties
A Trust Deed creates a binding contractual relationship between the following parties:
- The Trust Founder.
- The Trustees.
- The Trust Beneficiaries.
When a Trust is registered with the Master of the High Court, the Master will issue letters of authority authorising the Trustees to manage the Trust affairs and to take control of the Trust Property. It is important to be cognisant of the fact that no person may act in the capacity of a Trustee until such time as the Master of the High Court has endorsed their appointment by issuing letters of authority.
Separation of Ownership & Control of Trust Property
An important consideration pertains to the separation of the ownership and control of the Trust Property from the Trust Beneficiaries and the personal estates of the Trustees. The ownership of the Trust Property vests in the Trustees who are the holders of the Trust Property separately from their own – while a separation of control entails that the Trust Property and Trust affairs are managed for the benefit of the Trust Beneficiaries – who do not have any ownership or control.
The Discretion to Vest Assets
To the extent permitted by the Trust Deed, the Trustees may collectively resolve to vest the Trust Income and Capital in a particular Trust Beneficiary or in a particular group or class of Trust Beneficiary. This is referred to as a “discretionary” Trust – as the discretion to vest the Trust Property rests entirely in the hands of the Trustees in accordance with the stipulations of the Trust Deed.
Perpetual Existence
A Trust endures in perpetuity subject to the stipulations of the Trust Deed – a written agreement with provisions which regulate the lifespan of the Trust and its termination. The Trust is not attached to the life of any living person – it endures separately in this regard. Its perpetual existence makes the Trust a useful tool for tax and estate planning purposes.
A Trust is regulated by the stipulations of the Trust Deed and the Trust Property is separately owned and managed by the Trustees for the benefit of the Trust Beneficiaries. It is an instrument which can be utilised to accumulate, preserve and to transfer the benefit of wealth over the lifespan of the Founder and that of the Trust Beneficiaries, both present and future. Kindly contact the writer hereof should you be interested in or like to know more about Trusts, their registration, termination and management.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).