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An Overview Of The Types Of Trusts Under South African Law

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An Overview Of The Types Of Trusts Under South African Law

14th January 2019

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Trusts are an often talked about but are often misunderstood legal instruments in our law. This article will discuss the types of Trusts recognized by South African law, as well as the circumstances in which each is appropriate.

As a point of departure, in terms of the Trust Property Control Act 57 of 1988 (hereinafter referred to as the “Act”), all Trusts must and will have the same basic structure insofar as the parties. There would always be:

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  1. The Founder who creates the Trust;
  2. The Beneficiaries for whose benefit the Trust is created; and
  3. The Trustees who administer and control the Trust assets on behalf of the Beneficiaries.

Intervivos and Testamentary Trusts

Broadly speaking, there are typically two types of Trusts, namely Intervivos Trusts and Testamentary Trusts. A Testamentary Trust is a Trust created by way of a clause in a Will and will only come into effect upon the death of the founder.

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An Intervivos or Living Trust in contrast to a Testamentary Trust, is created during the lifetime of the Founder by way of a Trust Deed lodged with the Master of the High Court. This is the most common type of Trust in terms of which ownership of the Trust assets are transferred from the founder to the Trust normally by way of sale.

Bewind Trusts versus ownership Trusts:

In addition to Intervivos and Testamentary Trusts, South African law recognizes a third type of Trust known as a Bewind Trust. A Bewind Trust is best described as a scenario where the Founder gifts assets or an amount to the Beneficiary, but the control thereof vests in the Trustees. The distinguishing feature of a Bewind Trust is that ownership of the assets is in fact not transferred to the Trust itself, but rather to the Beneficiary. The opposite and more commonly used type is an Ownership Trust, where ownership of the Trust assets vests in the Trust rather than the Beneficiaries themselves. However, in either case there must remain a fundamental separation of control or ownership for a trust to be valid.

Discretionary and vesting Trusts:

A Trust whether Intervivos or Testamentary may be either vesting or discretionary. In a Vesting Trust, the Trust instrument-namely the Trust Deed or the Will is the sole determinant of whether the Beneficiary is entitled to the income or the capital amount and if so, how much. A Discretionary Trust by contrast, is more flexible and allows the Trustees a discretion as to how much of the income or the capital Beneficiaries may receive.

Other types of Trusts:

Various other types of Trusts exist the most common of which is called an Asset Protection Trust. These include Family Trusts where, as the name would imply, the Beneficiaries are family members or related to the Founder, or where such family members are vulnerable or dependent on the Founder. Charitable Trusts where the Beneficiary is a charitable organisation or the Trust assets and income are stipulated for charitable objectives and Empowerment or Employment Trusts are created for the benefit of employees.

Conclusion:

In conclusion, various types of Trusts exist, and these types or categories often overlap. It is important to fully consult with an attorney or financial planner before creating any type of trust. Contact SchoemanLaw Inc for all your trust needs.

Written by Max Rainer, Candidate Attorney, SchoemanLaw Inc

 

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