There are a number of particularly important decisions which must be made in establishing a family trust (The Trust Property Control Act, 1988 (Act No. 57 of 1988) regulates the control of Trust property and provide for matters connected therewith) as well as consideration for the potential risks involved.
One must ensure that your family, especially your spouse and minor dependents, will be cared for, and that your estate and income tax obligations are kept to a minimum, so that your heirs can enjoy the full benefit of your estate. A trust is an efficient and flexible way to ensure that your assets are properly managed, in accordance with legislative requirements by skilled professionals, in the best interest of the beneficiaries.
The benefits of a trust range from preventing family feuds; providing for dependants; retirement; liquidity. Furthermore it provides for flexible succession plans and promotes tax savings. So a Trust is the most ideal and reliable vehicle to preserve wealth from generation to generation whilst protecting the benefits of your beneficiaries.
A Trust is formed either by agreement, by Will or by court order. The number of beneficiaries to a trust is unlimited.
- An inter vivos trust (vested / discretionary trust) is created amongst living parties and on acceptance of the benefits the beneficiary becomes a party to the contract.
- A testamentary trust, “sui generis” is created in terms of a Will and comes into effect on death of the testator. Particular benefits of this type of trust are:- where the beneficiaries are minor children, their inheritance need not be placed in the Guardian fund until age of majority; a surviving spouse/guardian may apply for release of money from this trust for maintenance, education etc.
- A Bewind Trust: the beneficiaries acquire a vested right upon creation of a trust. Their rights are normally only limited in so far as their control and administration are transferred to the trustee.
When choosing a Trustee, any person may be appointed and is entitled to act by virtue of written authorisation granted by the mater of the High Court. The Trustees duties is to give effect to the Trust, act in good faith and always maintain independence and impartiality.
One should contemplate appointment of a corporate trustee whom benefits from being an outsider; can make decisions free from bias and considerations of family dynamic and help ensure that current and future generations benefit from the continuity, prudence, and professionalism that a well-established organization can provide. Professional trustees are trained to identify any issues which may arise and ensure that the trust deed will meet its particular objectives.
The Trustee must be willing to accept significant recordkeeping responsibilities, including accounting for the receipt and disbursement of income from the trust assets. Preparation and filing of any annual trust income tax returns and financial statements that also are required. These requirements generate further expenses.
In addition to this, the importance of keeping up with ever-changing and complex laws regarding trust administration. It’s easy to see that a friend or family member may be burdened by these responsibilities. A corporate trustee carries with him the experience and expertise required.
In summary, trusts are not appropriate for everyone. However, if set up and administered properly, they still provide real and substantial advantages which could benefit you and your family.