Written by Mari van der Walt
31 December 2022

How To Register A Trust

There are various ways to safeguard your assets and ensure that it is managed adequately – an estate planning measure used to achieve this goal is that of a trust. The field of trust law can be very complex, leaving most people in the dark about the inner workings and possibilities offered by the law of trusts.

What is a Trust?

A trust is a legal entity created by the founder, who intends for beneficiaries of the trust to receive benefits from it. The founder appoints trustees, who manage the trust assets on behalf of the beneficiaries as well as for their benefit.

What Are the different types of Trusts in South Africa?

Yes, there are two main categories of trusts in South Africa, namely:

  1. Ownership Trust:

    Upon creation of the trust, the founder transfers the ownership of the trust property to vest in the trustees in their fiduciary capacity. The trustees will manage the trust property for the benefit of the beneficiaries.

  2. Bewind Trust:

    Upon creation of the trust, the founder causes the ownership of the trust property to vest in the beneficiaries of the trust. The trustees must still administer the trust property for the benefit of the beneficiaries.

How is a Trust Created?

There are three ways how a trust can be created, namely:

  1. Inter Vivos Trust:

    A trust created during the lifetime of the founder (also referred to as a ‘living trust’) and will become operational during this time. The instrument whereby the trust is created is a trust deed. This trust can have any specific goal, for example, it can be for estate planning purposes or a charitable objective.

  2. Testamentary Trust:

    This trust is only created upon the passing of the testator. The testator usually bequeaths specific assets to the trust for the benefit of the beneficiaries, (for example where minor children are involved). The trust instrument whereby the trust is created is the last will and testament left by the testator. It is important to note that the creation of a testamentary trust must be explicitly stated in the last will and testament of the testator.

  3. Court order:

    A court may order the creation of a trust, for example, a court may order that a special trust be created for the maintenance and well-being of a mentally incapacitated person.

What are the requirements to Register a Valid Trust in South Africa?

In the case of Administrators, Estate Richards v Nichol 1996 (4) SA 253 (C) the court laid down 5 requirements for the creation of a valid trust:

  1. The founder must have the intention to create a trust.
  2. The founder must express his intention to create a trust in a manner that will create a legal obligation, for example, a written agreement, a will, or a court order.
  3. There needs to be a reasonably certain definition of what will constitute the trust property. Section 1 of the Trust Property Control Act 57 of 1988, defines property as movable or immovable property and includes contingent interests in property that are to be administered or disposed of by the trustees subject to the provisions of the trust instrument.
  4. There needs to be a reasonably certain definition of the trust object. It is important to differentiate between a trust object and a trust purpose. The trust object is usually specified in the trust instrument and all the parties involved in the trust usually have knowledge of this object. A trust purpose is what the trust seeks to achieve in its daily workings.
  5. The trust object needs to be lawful. Should the trust object be illegal, contrary to public policy or contra boni mores the trust object will be regarded as being unlawful.

What are the advantages of a Trust?

  • Continuity: A trust does not have a specific life span-it can be operational for numerous generations.
  • Conservation: A trust is a wonderful vehicle to ensure financial protection and stability of the trust property, especially for minors, those who are mentally incompetent or people with special needs.
  • Privacy: as the trust deed is not part of the public domain, all dealings of the trust are private in nature. The Master of the High Court has the physical trust deed in storage, and only the interested parties have inside knowledge as to the whereabouts and operation of the trust.

What are the disadvantages of a Trust?

  • Loss of control: Once assets are trust property they will be managed solely by the trustees. The trustees must be carefully selected as they need to work together for the benefit of the trust. It is also advisable that an independent trustee be appointed to ensure the best interest of the beneficiaries is the main goal and that the trust object is achieved.
  • Prolonged registration: The registration of a trust can be a very lengthy process as delays in the office of the Master of the High Court may occur.
  • Compliance: A trust must have annual financial statements prepared by a qualified accountant and submit tax returns to SARS, as a trust is subjected to tax.

What is the legal stance of a Trust?

A trust is not a juristic person; thus it does not have a legal personality. This means that a trust cannot institute legal action or defend any legal action instituted against it. Resulting in the appointed trustees acting on behalf of the trust concerning all legal action.

How are Trusts regulated?

The Trust Property Control Act 57 of 1988 (“the Act”) provides guidelines for the operation of all trusts. The trustees must ensure that their conduct and decisions are in line with the Act as well as the trust deed.

Is a Trust liable for tax payments?

Yes, a trust is usually taxed at a set rate of 45%. A special trust is taxed on a scale from 18% to 45%.

Contact the Burger Huyser Attorneys team of experienced trust lawyers who can assist with the drafting and registration of trusts as well as advise on the management of a trust. Our qualified team is ready to ensure your trust needs are met.

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE