1. A trust is an arrangement that allows someone to hold assets (without owning them) for the benefit of the trust beneficiaries. The key element of the trust arrangement is the transfer of ownership and control of the trust assets from the donor or founder to one or more trustees who hold the trust assets not in their personal capacities, but for the benefit of the trust beneficiaries.
  2. A trust beneficiary is entitled to benefit under the trust arrangement, from vested or discretionary rights determined by the trust deed. Trust beneficiaries are usually natural persons, though a juristic person such as a company may also be the beneficiary of a trust. All trusts are required to have ascertainable beneficiaries.
  3. Trusts are governed by the Trust Property Control Act 1988. A trust’s constitutional document is a trust deed which sets out the framework in which the trust must operate, including its powers and limitations. As a general rule trusts must be registered with the Master of the High Court in the relevant jurisdiction where the trust’s assets are situated. Trustees may only act once the Master has issued letters of authority allowing them to act.
  4. A trust does not have legal personality because it is, simply, an accumulation of assets. In some circumstances – such as for tax purposes – it is regarded as having a separate legal identity. Despite its lack of legal personality, a trust can have legal capacity and the trustees may perform juristic acts as long as the trust deed allows this.
  5. A trust may be used to hold and protect personal or business assets, which is especially beneficial in the event of subsequent liquidation, sequestration or divorce. Trusts may also be used to hold shares in businesses and to ensure the continuity of ownership of assets. Assets may be placed in a trust by donation of assets to a trust or selling assets to a trust.
  6. There are two main types of trusts:
    • trust between living persons (inter vivos trusts) – created by and between living persons through an agreement, for example a family trust or an employee share ownership trust; and
    • testamentary trusts – created in terms of a will.
    • Trusts can also be governed by a particular statute – for instance the Companies Act 2008 envisages a trust to hold shares that have been issued but not fully paid for and the Financial Institutions (Protection of Investment of Funds) Act 2001 provides for the safe custody and administration of trust property by financial institutions.
  7. The trustees owe, both at common law and in terms of statute, a fiduciary duty to the trust’s beneficiaries. The trustees are required to administer the trust solely for the benefit of the trust’s beneficiaries. A person who is ineligible or disqualified in terms of the Trust Property Control Act cannot be a trustee. The Master should ensure that those who benefit from the trust do not solely control the trust. In respect of family trusts, where the trustees are all beneficiaries and the beneficiaries are all related to one another, the Master can insist on the appointment of an independent outsider as one of the trustees.
  8. Trusts are convenient vehicles for employee share schemes where the trust can hold the shares for the benefit of employees and dividends are distributed to the beneficiary employees without the need for ownership of the shares to change when employees join or leave the company.
  9. A trust is subject to income tax at a rate of 40% and capital gains tax. Trust income may be distributed to the trust’s beneficiaries through the conduit principle, by which tax is only paid at the individual marginal tax rate of the recipient beneficiary. Subject to some limited exceptions, no estate duty is payable by the trust on the assets transferred to a trust on the death of the transferor.
  10. A trust will terminate by written agreement, on the date set out by the founder, or upon the achievement of the trust objective or upon the realisation of the impossibility of achievement of the trust objective. On dissolution, the trust’s assets will devolve as contemplated in the trust deed.