The primary functions of trusts are to provide asset protection, facilitation of maintenance plans (for minors, dependents, and other commitments), continuity of ownership and, in certain circumstances, trusts can provide tax and estate duty advantages.
Trusts can be used to achieve several estate planning objectives if used appropriately and in the correct circumstances. Whether a trust should form part of your estate plan depends on several factors including your asset value, the nature of your assets, who your dependents are, and what succession plans you require to fulfil your obligations.

Testamentary trusts

Testamentary trusts, unlike inter vivos trusts (living trusts), are set up by the founder or testator using a last will and testament as the trust instrument. A testamentary trust only comes into effect when the testator passes away and the testamentary trust is registered with the Master of the High Court/HMRC. This type of trust is generally used by a testator for the protection of assets in their deceased estate, which are intended for their minor children or other dependents. These trusts normally terminate when minor children attain the age of majority (18), or any age stipulated by the testator in his will and the balance of assets held in the trust are distributed to the children. Testamentary trusts can be used for other purposes, such as to house assets on behalf of a mentally or physically impaired child or dependant spouse.

Inter vivos trusts or living trusts

Inter vivos trusts are created during the lifetime of the trust founder or settlor and can take the form of either a vesting or a discretionary trust. The trust founder or settlor sets up an inter vivos trust using a trust deed which sets out the framework in which the trustees must operate. This framework specifies the powers, limitations, and objectives of the Trust. In setting up an inter vivos trust, the founder essentially creates another legal entity or structure in which assets will be held and administered for the benefit of trust beneficiaries. The founder then transfers assets or funds into the trust by way of sale or donation. It must be clear that the founder relinquishes control and ownership of those assets. Trustees are appointed (in terms of the Trust Deed) and they become custodians of the trust assets in their trustee capacity. The trustees have a duty of care, skill, and due diligence to administer and maintain the trust assets in accordance with the instructions and powers bestowed upon them in terms of the Trust Deed and within the best interests of the trust beneficiaries.

Bewind trusts

Bewind trusts are created, during the lifetime of the founder, as a trading vehicle and provide trustees with limited liability and certain tax benefits. In a bewind trust, the trust founder sets up the trust in such a way that the assets vest in the beneficiaries, and the trustees only have an administrative function and the control of the trust assets. The trustees are required to manage the trust assets for the benefit of the beneficiaries until the assets are transferred to them. The transfer of ownership to the beneficiaries is the distinguishing feature of a bewind trust. This type of trust is suitable for investment or business purposes.

The nature of a trust depends largely on when it is created, the rights given to its beneficiaries, and the purpose for which they are created.

Business trusts


Business trusts are inter vivos trusts which are set up during a founder’s lifetime to conduct business and generate profits. Such an entity can afford certain protections and advantages that other business entities do not, therefore, it is imperative that the trust deed is set up correctly. In the structure of a business trust the trustees use the assets in the trust to carry on their business and produce a profit for the benefit of the trust’s beneficiaries. The assets held in a business trust are protected from the trustee’s and founder’s creditors, and therefore this type of trust can be more secured and cost-effective to administer than other business entities.

“Vesting” versus “discretionary” trusts


Depending on the intention of the founder, any of the above-mentioned trusts can be set up as either a vesting trust or a discretionary trust. In a vesting trust, the beneficiaries and their benefits are clearly defined in terms of the trust deed and the trustees have the duty to follow these specific instructions. On the other hand, in a discretionary trust, the trustees are empowered to use their discretion to make certain decisions such as the amount and timing of distributions to beneficiaries. The Trustees could also potentially decide who can and will benefit from the trust.

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