There are three types of trusts under South African law:
An “ownership trust”, under which the founder or settlor transfers ownership of assets or property to a trustee(s) to be held for the benefit of defined or determinable beneficiaries of the trust.
A “bewind trust”, under which the founder or settlor transfers ownership of assets or property to beneficiaries of the trust, but control over the property, is given to the trustee(s).
A “curatorship trust”, under which the trustee(s) administers the trust assets for the benefit of a beneficiary that doesn’t have the capacity to do so, for example, a curator placed in charge of a person with a disability.
Trusts can be described in various ways:
1. The way in which they are formed:
Inter vivos trust is created during the lifetime of a person;
Mortis causa (testamentary) trust is set up in terms of the Will of a person and comes into effect after their death;
2. The rights they give beneficiaries:
Vesting trust – the income (both of a revenue and capital nature) or assets of the trust are vested in the beneficiaries. The beneficiaries have the vested rights to the income or assets of the trust.
Discretionary trust – the trustee(s) usually have the discretion whether to and how much of the income, assets or net trust capital of the trust to distribute to the beneficiaries. In these circumstances the beneficiaries only have contingent rights to the income, assets or net trust capital of the trust.
Purposes of a Trust:
- Trading trusts
- Asset protection trusts
- Charitable trusts
- Special trusts
What makes each of these trusts different?
Their purpose. The reason for setting up the trust in the first place – is critical to understand, and that will dictate what the wording of the trust agreement will look like.
Some of the benefits of creating a Trust:
If your beneficiaries don’t have the capability or desire to manage the assets you’ll be giving them, having trustees manage those assets can solve the problem.
If you want to protect assets from creditors, marriage breakdown or from those who might influence your beneficiaries, a trust can be an effective vehicle. Be aware that there is “fraudulent conveyance” legislation that could prevent you from transferring assets to a trust to avoid claims in some cases
If you don’t trust beneficiaries to directly own the assets you want them to have (perhaps because they are minors), you can distribute assets to them over time through a trust.
Avoiding compulsory succession
If someone feels that they were treated unfairly in your Will, a legal battle could ensue. In some cases, it may be possible for your Will to be varied (changed) – called “compulsory succession.” A properly drafted trust can be watertight so that challenges to your wishes may be avoided.