What is a Trust?
transferred to the trust for the benefit of its nominated beneficiaries. Trust assets are managed by trustees.
Trust assets are accumulated and held in its own right and does not form part of the estate of the founder or donor. A trust can also continue to exist after the founder has passed away. It is important that a trust has its own separate bank account and that financial statements are prepared in accordance with the provisions of the trust deed.
A trust can be created by the founder during his lifetime – such a trust is referred to as an inter vivos trust, or can be created in terms of his will after his death.
A trust is created by a trust deed, which is essentially an agreement between the founder and appointed trustees. The trust deed will determine how the trust is to be managed, the purpose for which the trust was created, who the beneficiaries are and how assets are to the distributed, the powers of trustees etc.
The trust deed is lodged with the Master of the High Court together with supporting documents, whereafter the Mater will register the trust and issue Letters of Authority. The date of the letter of authority is the date on which the trustees will assume responsibility and authority to act on behalf of the trust. No action may be taken on behalf of the trust if the letter of authority has not been issued yet.
Most Master’s Offices will require that an independent trustee is appointed in the case of a family business trust where the founder and all other trustees are related to each other. The independent trustee must not be related to the founder, trustees or beneficiaries and must understand the nature of their duties. Ideally, they will have knowledge and experience in the administration of trusts.
All trustees must understand the fiduciary nature of their duties and must fulfil same with diligence, care, honesty and with the best interests of the trust at the forefront. A trust deed will usually provide that if it is found that a trustee is not acting in accordance with these duties, he may be removed from his position as trustee.
A trustee does not have to be a qualified professional, but has to have adequate understanding of what is expected in the fulfilment of their duties. As trust administration involves various financial- and legal implications, trustees may involve third-party agents in order to assist the trustees in fulfilling their duties.
The Trust Property Control Act 57 of 1688 provides for a class of persons who may not act as trustees:
• Persons convicted of offences where dishonesty is an element’;
• Persons declared insolvent and unrehabilitated;
• Persons declared mentally incapable or declared unable to manage their own affairs.
• Persons who cannot comply with a lawful directive by the Master or the law in the running of the trust