In South Africa, trusts are governed by the Trust Property Control Act, 57 of 1988 (“the Act”) and are registered by the Master of the High Court. The trust division of the Master’s office maintains a trust file and controls any queries in reference to trusts.
A trust is a legal entity consisting of a donor/founder, trustees and beneficiaries. Assets are transferred from the donor/founder to the trustees, in their capacity as such, who control the assets for the benefit of the beneficiaries. Beneficiaries of a trust are usually natural persons, but may also be a juristic person, such as a company. A trust is regarded as an accumulation of assets, and therefore lacks legal persona. It is however considered to have a separate legal identity and trustees may perform juristic acts if the trust deed authorizes them to, such as purchasing immovable assets to form part of the trust assets.
DEED OF TRUST
All information with reference to a trust is contained in the deed of trust which can be described as a contract between the founder/donor and the trustees. The trust deed may be considered to be a manual for the trustees and sets out all the information with regard to the founder/donor, trustees, beneficiaries, the objective of the trust, any possible conditions that may apply and the powers and functions of the trustees, amongst others.
TIPES OF TRUSTS
There are two types of trusts:
- Testamentary trust or a trust mortis causa (when a will gives effect to the registration of a trust). These trusts are very popular for the use of protecting assets of minors or people who are not capable of looking after their own interests. The will directing the registration of a testamentary trust usually also contains a clause to determine the termination of the trust. This might be connected to a certain time period or a specific future event.
- Living trusts or inter-vivos trusts are created by agreement between living people. These trusts are very useful for keeping assets for generations on end. The Founder establishes the trust during his lifetime; this constitutes an agreement between himself and the trustees.
There are different forms of living trusts:
- Family Trust
- Guardian’s Trust
- Charitable Trust
- Umbrella Trust
- Special Trust
REGISTRATION OF A TRUST
The registration of an inter-vivos trust is actually quite simple. The following documents must be lodged with the Master of the High Court in the area where the majority of the assets to vest in the trustees are situated:
- Original Trust Deed (or a notarial certified copy thereof)
- Proof of payment in the amount of R100.00 for the registration of the trust
- Original written acceptance of Trusteeship
- Original written acceptance of Auditor
- Bond of security by the trustees, if it is required by the Master.
When registering a testamentary trust, the Master only requires the following documents:
- Will of the deceased ( the original should to be lodged with the Master when the estate is reported )
- Bond of security, should the will not exempt the trustees from furnishing security.
The Master will issue a letter of authority to the trustees when all the requirements for registering a trust are satisfied. No trustee may act on the trust’s behalf prior to the issuing of the letter of authority. The trustees are to keep proper record of the trust’s finances as the Master may request lodgment of financial statements at any time. Trustees often appoint a bookkeeper to ensure that that the trust’s affairs are in order.
TERMINATION OF A TRUST
The Act does not make provision for deregistration or termination of a trust; that is provided for in the trust deed. According to our Common Law, a trust may be terminated in the following instances:
- When statutes dictate termination of the trust,
- After the purpose of the trust has been fulfilled,
- When the beneficiaries renounce or repudiate their benefits in terms of the trust deed,
- In the event that the trust property has been destroyed,
- As a consequence of the operation of a resolute condition.
The Master will deregister a trust upon request and based on the abovementioned grounds, when the following documents are lodged:
- Original letter of authority;
- Bank statements reflecting a zero balance of the final statement;
- Proof that the trust assets devolved upon the beneficiaries in accordance with the trust deed.
The trust deed nominates trustees. These nominees have to accept the nomination as trustees in writing. The trustees have a fiduciary duty to administer the trust for the benefit of the beneficiaries.
Beneficiary-trustees may not control the trust solely for their benefit and the Master may require that an independent objective outsider be appointed as trustee as well.
Trustees take control over the assets on behalf of the trust and the assets become part of the property of the trust. The donor/founder loses control of the assets when they become part of the property of the trust. The trustees are to protect and control the assets which, by implication, means that the trustees may also make investments in accordance with the needs of the beneficiaries.
It is expected of trustees to report to the Master, their fellow trustees, beneficiaries and the guardians of minor children as well as to SARS.
The physical administration of the trust takes place in the same way meetings are conducted in other business forms. The ideal is that agendas are prepared and delivered prior to meetings of the trustees and that minutes of the meetings are kept as well. This will prevent confusion between trustees and may even be used as proof, should the validity of a trustee’s actions be attacked.
Should a beneficiary feel aggrieved by the actions of a trustee he may approach the Master and even institute legal proceedings against trustees for maladministration, damages suffered due to the trustee’s actions and theft.
Trustees are always required to act in good faith and ensure that trust assets are administered with the necessary expertise. They are legally bound to the trust deed and are obligated to act in accordance therewith. Trustees may not speculate with trust assets to make a secret profit.
Trusts are subject to income tax at a rate of 40% as well as capital gains tax. The income of the trust may be divided to the beneficiaries by means of the conduit principle This means that income or capital that has been vested in beneficiaries is not taxed in the hands of the trust, but rather in the hands of the beneficiaries. With reference to estate duty, none is payable by the trust if transfer of assets to a trust on the death of the transferor takes place. There are however some exceptions to this rule.
Kindly note that tax issues relating to trusts may be very complex and differ from one trust to another, depending on each trust’s individual circumstances. Therefor it is advisable to seek expert advice and direction when one deals with tax issues.
Written by Gina Troskie (Attorney)