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. 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.
Trusts provide the following benefits:
- Protecting assets for incapacitated beneficiaries (e.g. minor children) against a bad marriage or bad business decisions.
- Although ownership of the trust assets usually vest 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.
- Property registered in the name of a trust does not increase the value of the founder/beneficiary’s estate, facilitating a saving in estate duty.
On the other hand a founder who settles assets into the trust loses control of the assets. A beneficiary is usually not entitled to any of the trust income, as any distribution is usually subject to the discretion of the trustees.
The trustees are under the obligation to act in the best interests of all the beneficiaries. This obligation is known as the fiduciary duty.
Consult a FISA member before venturing into the world of trusts.