Family Trusts vs Testamentary Trusts

 

A Trust can be formed in one of two ways:  either while you are alive (inter vivos) where an individual wants to place assets in a trust for specific beneficiaries or in terms of a Will (mortas causa).

Trusts are used primarily in Wills to protect the inheritance of minors and only come into effect after the death of the testator.   The bequeathed assets are then protected until the beneficiaries are old enough to inherit, i.e 18 years old.   This is also a useful tool if the testator wants to prolong the time period before the actual asset transfers to the beneficiary, as the testamentary trust can be structured in such a way that the inheritance only passes to the beneficiary at an age older than 18,  i.e. when the beneficiary turns 30.

Any asset can be placed in an inter vivos trust – eg. immovable property, cash, shares and the asset, once transferred, belongs to the Trust and will not be taken into account for the purposes of valuing your personal estate.   This type of trust works well when the asset held by the trust is a family beach house or farm.

All trusts have to appoint trustees, who manage the assets of the trust on behalf of the beneficiaries.   In a testamentary trust, the Will itself is the trust deed and contains instructions on how the trust is to be managed and the powers and duties of the trustees.

In an inter vivos trust, a trust deed is drafted and registered with the Master of the High Court and sets out the powers and duties of the trustees.   The trustees can only act on behalf of the trust once the Master has issued Letters of Authority to do so.

It is practicable that at least 3 trustees are appointed in a family trust and at least one of these trustees should be an independent party, eg. an attorney, accountant or a trust company.    A separate bank account in the name of the trust must be opened and all financial transactions relating to the trust must be recorded through this bank account.  SARS also requires all trusts to be registered for income tax purposes, so careful record keeping is a prerequisite for trustees.