Trust
When drafting your Will, you may realise the need to create a Trust depending on your testamentary needs. A Trust is a legal entity that is created to hold your assets and to be managed for the benefit of a third party. It is usually created for third parties who are minor children, beneficiaries that are mentally or physically incapable of managing their own affairs or even those that require their inheritance to be preserved.
You may have minor children, a spouse that requires life-long care, a brother, sister or even an aunt that you wish to bequeath an inheritance to but would prefer for their inheritance to be managed for their lifetime or until such time they are mature enough to take possession of it.
There are two types of Trusts. Trusts are either an Inter-Vivos (living) Trust or a Testamentary Trust.
An Inter-Vivos Trust refers to Living Trusts that are created during the lifetime of the trustor (the creator) and the assets of the Trust are utilised during the lifetime of the Trustor. A living Trust can be further broken down into two types of Living Trusts – A Discretionary Trust and a Vested Trust. A Discretionary Trust allows Trustees the power of discretion as to whether beneficiaries will derive any income or capital from the assets held in Trust. But a Vested Trust does not allow a Trustee the privilege of discretion and the income and capital from the assets of the Trust will automatically vest in the beneficiaries.
Living Trusts may be revocable or irrevocable. A revocable Trust may be changed at any time by the Trustor. It is a great advantage to have a Trust that is revocable because it has flexibility to accommodate for changes that occur. As a Trustor, you may certainly want to change your beneficiaries, the way your assets are distributed through the Trust or even what type of assets the Trust holds. But it also has disadvantages in that it is not protected from creditors the same what that an irrevocable Trust is.
An irrevocable Trust on the other hand may not be changed unless consent from all the beneficiaries are obtained or by order of a Court of law. Irrevocable Trusts enjoy an advantage of little or no tax implications upon the death of the Trustor. Beneficiaries also do not incur taxes on the income derived from their assets.
A Testamentary Trust comes into effect upon the death of the Trustor. The assets that are held in Trust will be managed and distributed according to the Last Will and Testament of the Trustor. Having a Testamentary Trust allows the Trustor to decide exactly when assets should be given to the beneficiaries. Testamentary Trusts are always irrevocable. There are a number of advantages to creating a Testamentary Trust such as tax benefits, asset protection and no transfer fees.
If you have minor children, we will assist you to create a Children’s Trust that will hold the assets you are bequeathing to them and manage the assets until the date they attain the age of majority or are mature enough to take possession of their inheritance and manage their own affairs.
We can take care of your worries concerning the well-being of your spouse by creating a Widow’s Trust. A Widow’s Trust will allow us to help you manage monies that it will hold for your spouse and distribute the funds in the form of a monthly income so that your spouse can sustain himself/herself for their remainder of their lifetime.
If you have any other beneficiaries or children that over the age of majority but are not ready to receive the inheritance you have for them, either because they cannot manage their own affairs or simply because you want to make sure their inheritance is preserved for future generations, we can create a Special Trust for you that will provide financial support or manage assets to the beneficiaries. This is also helpful so that monies or assets do not fall into the care of the Guardian’s Fund without your express wishes being carried out.
First-time Trustors may have concerns that they will not have direct power and control to manage their assets that are held in Trust.
Here are a few tips about the duties of a Trustee:
– A Trustee must act in their personal capacity. They may never direct their authority to anyone else neither can someone else be tasked to do the job on their behalf.
– A Trustee must account to the Master of the High Court. They must be able to show that they are acting in good faith. They are also required to make a recording of their dealings with assets in Trust which is submitted to the Master and reviewed.
– A Trustee must act in accordance with the terms and conditions of the Trust. They will not be allowed to deviate from your instructions about how the Trust should be managed – if they do, your beneficiaries can report this conduct to the Master.
– The Trustee must show correct management of the assets held in Trust. If it is not managed correctly, the Master has discretion to intervene and decide whether to appoint a new Trustee.
– A Trustee has a duty to make sure that all beneficiaries receive what they are entitled to and may not disadvantage one beneficiary in favour of another.
Frequently Asked Questions About Trusts
- A valid Trust must have three parties to it – a trustor who is the creator of the Trust, the Trustees who are the managers of the trust and its assets and the beneficiaries of the Trust.
- The Trust must hold property in it – tangible assets, immovable property or monies. The property held in Trust must be clearly identified.
- The Trust must state a clear objective and its purpose must be binding on the Trustees.
- All trustees must competent and have capacity to occupy the position of a Trustee. The Master of the High Court must be satisfied that the trustee can hold his position.
- There must be at least one beneficiary to the Trust.
- Two original, signed Trust Deeds
- A Trust registration and amendment form
- An Annexure B form for the Master’s Office
- A signed acceptance of the Trust by the Trustees
- Declaration by the Trustees
- Certified copies of the Identity Document of each Trustee
- A signed Declaration by the beneficiaries of the Trust
- A signed Undertaking by the auditor / accountant to administer records of the Trust.
- Proof of payment to the Master for registration of the Trust.
R 250.00 at present.
Yes. There is tax payable on Living Trusts and Revocable Trusts, at the levied rate of 45% and for special Trusts between 18% and 45% percent. The Trustees are responsible for tax on Trusts while tax on any income derived from the Trust is for beneficiaries’ responsibility.