Understanding Legal Trusts
A trust is a legal entity where assets are held for the benefit of the trust beneficiaries. A founder is the person who creates a trust and the trustees are appointed to administer the trust for the benefit of the trust beneficiaries. The trust deed is the document, which acts as the blueprint that defines the manner in which a trust can operate and it sets out the powers of the trustees and the rights of the beneficiaries.
Trusts are governed by the Trust Property Control Act and have to be registered by the Master of the High Court within the jurisdiction where the trust assets are located. The trustees for the time being of a trust can sue and be sued, on behalf of the trust. There are generally 2 types of trusts, a living trust and a testamentary trust.
The living trust is termed an inter vivos trust and is created between living persons. Testamentary trusts are created in a will and only comes in existence on the death of the testator. The founder is the person (or entity) who conveys property in trust to the trustee with the clear and serious intention of creating a trust. In the case of a testamentary trust, the founder is the testator who creates the trust unilaterally in his will.
A trustee owes a fiduciary duty to the trust's beneficiaries. Trustees are required to administer the trust solely for the benefit of the trust's beneficiaries. A foreigner can be appointed as act as trustee in a trust in South Africa and the Master of the High Court may call for the foreign trustee to either provide security or have a domicilium address in the country.
The office of a trustee can be terminated on resignation by the trustee or when the trustee vacates office, due to death of the trustee, or when he or she fails is removed from office. A person who is ineligible or disqualified in terms of the Trust Property Control Act cannot be a trustee.
Any natural person or a legal person such as a company or close corporation or even another trust can be a trust beneficiary. The beneficiaries can either be named or can be ascertained from the definition in the trust deed from a specified group of beneficiaries, such as the children of X, children then being defined, for example, as all descendants, including adopted children and their descendants.
So, for example, a trust can be formed for existing beneficiaries and unborn beneficiaries or for beneficiaries such as trusts, companies, etc yet to be formed. The trustees can be left with the discretion to select, from time to time, a beneficiary or beneficiaries from a designated class of beneficiaries.
Trusts are subject to income tax and capital gains tax. A trust will dissolve on the date set out in the trust deed or when the trust has achieved its objective. On dissolution, all the assets in the trust will go to the trust beneficiaries. Contact Fawzia to help you plan your estate.
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