In order to make informed decisions when planning one’s estate, it is vital to have a basic understanding of trusts, as well as their potential significance. In South Africa, trusts are regulated by the Trust Property Control Act 57 of 1988, and can be divided into two categories, namely testamentary trusts and inter-vivos trusts.
A testamentary trust is established as part of a person’s last will and testament. This type of trust comes into effect upon the death of the testator and the will itself serves as the trust deed and stipulates how the provisions of the trust must be carried out by the trustees.
This type of trust can be particularly beneficial when dealing with vulnerable beneficiaries such as minor children, or mentally ill persons who are not capable of managing assets independently. The terms of the will can, for example, state that a beneficiary will only receive his or her inheritance at a certain age, or it may specify that money bequeathed is to be utilised for a specific purpose, such as education or travel or medical expenses. Not only can a testamentary trust prevent assets from being squandered by unfit beneficiaries, but it can also protect beneficiaries from creditors.
As the will of the deceased is the mechanism of governing how the assets are managed and distributed, it is imperative that a testator appoint competent and responsible persons to act as trustees.
An inter-vivos trust on the other hand is often referred to as a “living trust”. This form of trust is established and brought into effect whilst the creator of the trust is still alive. A trust deed is drawn up (as opposed to a will as with the testamentary trust) which sets out the beneficiaries, nominates the trustees who will be responsible for administration of the trust, as well as outlining the details and management of the assets. Once the assets are transferred to the trust, the trustee assumes control over it and the founder of the trust effectively relinquishes any control over the asset.
One must also bear in mind that there will be administration costs involved in maintaining and registering a trust, regardless of the type of trust used.
Article written by Faure & Faure Inc. Senior Associate, Lusharno Styles and Candidate Attorney, Sarah Patel.
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