Trust Basics — 9 key questions answered

Trust Basics — 9 key questions answered

Cerize Roets — Head of Legal Services, Kilgetty Statutory Services

The administration of a trust is governed by the provisions of the Trust Property Control Act, 1988 (Act 57 of 1988). There are two types of trusts; inter vivos and testamentary trust. An inter-vivos trust is created between living persons and a testamentary trust derives from the valid will of a deceased.

When considering the formation of any trust, there are fundamental questions you need answered in order to understand the purpose of this separate legal entity. The following questions are frequently asked:

What is a trust?

A trust can be seen as a separate legal entity run by the appointed trustees as listed on the current Letter of Authority. Trusts are created by the Founder for the benefit of the beneficiaries.

What documents are required to form a testamentary trust?

For the testamentary trust, the completed acceptance of trusteeship, the photo page of the trustees’ identity documents of each trustee and all requirements listed on form JM21 have to be lodged. There are no fees involved and the deceased’s last will serves as the trust document.

What documents are required to form an inter-vivos trust?

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The inter-vivos trust must be registered with the Master of the High Court in whose area of jurisdiction the greater portion of the trust assets are situated. If more than one Master has jurisdiction over the trust assets, the Master in whose office the trust was first registered will continue to have jurisdiction.

What is the Letter of Authority?

On receipt of the required documents by the Master’s offices, the Master may issue the nominated trustees with the Letter of Authority to administer the trust. No trustees may act as such without the written authority of the Master.

Who needs a trust?

The formation of a trust can be beneficial to any person, either by protecting investments of a high net worth or having an individual vehicle to govern assets for the benefit of the beneficiaries of the trust.

When should I form a trust?

Trusts can be formed at any stage and it is crucial to ensure that the Trust Deed is so compiled to be a concise document to assist the trustees to govern the Trust for benefit of the beneficiaries.

Trustees should keep accurate financial statements to comply with their fiduciary obligations to the beneficiaries. The Master may request the trustees to account for the administration of the trust.

Why do I need an independent professional trustee?

Article: Trust BasicsThis principle was established back in 2005 in the Badenhorst vs. Badenhorst case. An independent trustee is one of the pre-requisites to ensure that the trust assets are administered to the benefit of the beneficiaries.

How do the beneficiaries benefit from the trust wealth?

The wealth of a trust will grow in value by holdings assets. The trustees can make awards of the assets or income to the beneficiaries on conditions as set out in the Trust Deed.

It is important to note that the beneficiaries of any trust will not have the right to claim an award from the trust as the trustees cannot be dictated by the beneficiaries on how to administer the trust and distribute its wealth.

Can a Trust Deed be amended?

In general there are three ways to amend a trust deed, namely:

  • The founder and trustees conclude an amendment agreement in which the proposed amendments to the trust deed are contained. Where the founder of the trust has passed away prior to the amendment, the trust deed will not be capable of amendment in this manner.
  • The trust deed is amended in accordance with the variation clause of the trust deed. In the event that the trust deed does not contain a variation clause, the trust deed will need to be amended.
  • The trust deed is amended by way of a court application.

What happens to the trust when I die?

Should you be a trustee of the trust, it is best to include a clause in the Trust Deed allowing you or your spouse the right in your will to appoint a new trustee in your place.

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Kindly contact our offices for further assistance on trusts. Contact Cerize Roets at cerize.roets@kilgetty.co.za or at 0832275508.

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