A Trust is created when a person transfers property (any kind of asset with value) to another person for this second person (the Trustee) to hold and administer the property for the benefit of a third person, the Beneficiary.
Trusts can be created in a Will (a testamentary Trust), or by agreement between the transferor of the property (the founder or settlor) and the Trustee(s) in which case it is known as an inter vivos Trust, or by court order, e.g. in the case of a medical negligence or Road Accident Fund claim. The so-called family trust is usually an inter vivos Trust.
Despite being targeted by SARS in recent years, FISA believes that Trusts remain useful, if set up to protect assets and not just to save tax.
The Trustees are under the obligation to act in the best interests of all the Beneficiaries. This obligation is known as the fiduciary duty.
Benefits of a Trust
- Protecting assets for incapacitated Beneficiaries (e.g. minor children) against a bad marriage or bad business decisions.
- Although ownership of the Trust assets usually vests in the Trustees, they are held separately from the Trustees’ personal assets, ensuring protection against a Trustee’s creditors.
- Continuity in the case of, e.g. a parent passing away – the Trust will continue and the assets will not be impacted by the death of the parent.
- Assets registered in the name of a Trust does not increase the value of the founder/beneficiary’s estate, enabling a saving in estate duty.
It is important to note that a founder who settles assets into a Trust loses control of the assets. Also, a Beneficiary is often not automatically entitled to any of the Trust income, as income distributions may be subject to the discretion of the Trustees.
Consult a Fiduciary Practitioner of SA ® (FPSA®) or a FISA member before considering the use of a Trust in your estate planning.