What is a Trust?

What is a Trust?

Before we can talk about trusts and their benefits, it is necessary to understand what a trust is.

A trust is a legal institution in which a person, known as a trustee, subject to supervision, holds or administers property (immovable or movable) separately from his or her own, for the benefit of another person or persons (beneficiaries) or for the furtherance of a charitable or other purpose.

A trust is created by a person/s, known as the Founder, with the intention to create a trust. The Founder will entrust the Trustees with all or part of his or her property, who in turn are obliged to hold and administer such property for the benefit of the beneficiaries. The trust is governed in terms of a trust document, and in terms of the Trust Property Control Act.

The trust document sets out the details of the Founder, the initial Trustees and the details of the beneficiaries. The trust document also specifies inter alia the name of the trust, the powers and duties of the Trustees and the purpose of the trust. The Founder of a trust can also be a Trustee and beneficiary of the trust created.

There are different types of trusts, the main division based on the manner of creation: Living (inter vivos) trusts that are created during the founder’s lifetime, testamentary (mortis causa) trusts that are created in a will and come into being after the death of the testator, and trusts created by a High Court order. Trusts are further distinguished according to their nature or object, for example business trusts, family trusts, vesting trusts, discretionary trusts, public benefit trusts, etc.

Your own unique circumstances will dictate which trust will suit you best, for instance will it be for business or for estate planning etc.

There are a lot of advantages in having a trust.  For instance if your property is registered in the trust, and you are a beneficiary of the trust, then the property no longer forms part of your personal estate and is therefore protected from your creditors, even if you are declared insolvent.

If you transfer property to a trust, the effect is that the property is no longer an asset in you estate and no longer susceptible to estate duty that would otherwise have been payable on your passing away. Trusts can also be used to limit tax payable.

For further detail please do not hesitate to contact us.

Alex de Wet, Partner

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