A trust exists when property is held by one person, the trustee, on behalf of and for the benefit of another person, the beneficiary.
Although the ownership of the trust property vests in the trustee, it does not form part of the trustee’s personal estate. The trustee acts in an official capacity only and has an obligation to keep and apply the trust property in favour of the beneficiaries.
There are two main trusts that one must be aware of.
1. An inter vivos trust. This is created by way of an agreement between the founder and the trustee, whereby the founder during his lifetime transfers property to the trustee in favour of nominated beneficiaries.
2. A testamentary trust. This is created when a testator bequeaths property to a trustee in his will to be held in trust and administered in favour of nominated beneficiaries. The trust only comes into operation on the death of the testator.
There are many advantages of establishing a trust, including the benefits of paying less estate duty given the fact that property held in a trust is not considered to be part of the personal estate of the founder, the minimising of income tax liabilities, donations tax benefits, and ensuring continuity and security when the trust benefits minor children.
Inheritances of heirs who are minors and persons without contractual capacity can be incorporated into a trust in order for it to be properly managed and maintained by the trustees.
Under South African law, a minor (a person under the age of 18) on his or her own, in general, cannot inherit, because they do not have contractual capacity.
Therefore, upon the death of a parent, assets bequeathed to a minor in terms of a will or assets the minor inherits because the parent died intestate (without a will) are liquidated and the proceeds invested in the Guardian’s Fund. This is something every parent wants to avoid.
It is always a good idea for a parent to consider setting up a trust to prevent assets from being liquidated and paid into the Guardian’s Fund.
A properly set up trust can help families protect their assets and place them under the control of responsible persons who have the best interests of the beneficiaries at heart. Setting up a trust should always be considered in the context of your overall estate planning objectives.
Author – Jessica Gooding