Trust

A legal entity created by contract with the basic intention to bestow (give as a gift or as a right) assets for the benefit of others. These assets are then transferred from the current owner to the trust and the responsibility for their management in the interests of the beneficiaries is undertaken by trustees.

A trust is not like a company. It is not governed by the Companies Act and is not a legal entity created and recognized under statute. It is a creature of contract and common law – law created by court judgments.

An example of a trust would be as follows: A grandfather decides he wants to set up a trust for his grandchildren. He bestows two large rental properties to the trust in his will. His will appoints the parents and his lawyer as the trustees. His will sets out his wishes on how the benefits should be managed. The trustees then manage and control the rental income and the properties for the benefit of his grandchildren. The trustees and benefactor receive none of the benefits flowing from the trust.

Another typical case for a trust is where a wealthy person wants to leave his assets, for example, to assist food relief in Africa. A trust could be used to achieve this objective.

In South Africa, trusts are being used primarily as means of asset protection and to reduce death duties. For example, a businessman fears he will go bankrupt. Every major property purchase he makes is done via a trust. The property is not in his name and if he is married out of community of property, his wife and children can be the beneficiaries. His creditors then have no access to these assets. On his death, there is no death duty as these are not his assets and are in a legal entity that has a separate independent identity.

The legal and practical separation of benefactor, trustees, beneficiaries and the benefits flowing from the trust are increasingly important issues in the establishment and management of trusts. The original purpose of this form of legal entity (to bestow a benefit to another in moral and contractual trust) needs to be inherent in their intent, establishment and management.

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