Trusts have long been an attractive tool for the management and protection of assets in South Africa. An inter vivos trust, also known as a “living trust”, is a trust created during the lifetime of a person by way of an agreement between the founder of the trust and the trustees for the benefit of the nominated beneficiaries.
The essential requirements for a valid trust are:
- The founder must have the intention to establish a trust;
- There must be a binding obligation on the trustees to administer the trust;
- The trust property and object must be defined with reasonable certainty;
- The trust object must be lawful;
- There must be at least one clearly identified beneficiary; and
- The trustees must have the authority and capacity to act.
The trustees of an inter vivos trust are nominated, and their powers governed, by the terms of the trust deed. The trustees are legally responsible for the management of the trust’s assets in favour of the nominated beneficiaries and are required to maintain accurate records.
Trusts are generally favoured for the advantages they offer in respect of the protection of assets from creditors, the potential for tax benefits in relation to estate duty, and the potential to afford a simplified estate-planning mechanism. However, there are associated disadvantages as well, such as the high costs to establish a trust, the complexity of the management of trusts, the loss of control over trust assets, and higher tax rates.
While trusts can offer fruitful benefits for the protection and management of assets, the legal and financial implications of a trust must be carefully considered when deciding whether to utilise a trust. Professional guidance must be sought for the drafting of a trust deed and subsequent establishment of a trust.
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).