by Nandi Sauer

In this article we discuss the 3 valid trusts in South Africa, and which one we prefer, and why.

As mentioned in previous Times Newsletters, a trust is a valuable tool for estate and tax planning. A well-planned trust can protect your assets and preserve your wealth for generations to come. The advantages of a trust is something we learn about on a regular basis, however, in some households, the concept of a trust is still an uncertainty.  The reason for this is that even though the advantages of a trust are something people know, they don't always know the basics behind a trust.

A trust is a contract on behalf of a third party. The founder of a trust enters into a contract with the trustees of the trust to the benefit of the beneficiaries. In this contract, the founder provides an original donation (for example R100) to the trustees to administer the donation on behalf of the trust to the benefit of the beneficiaries. The founder gives all his rights to this donation over to the trustees of the trust. This contract is regulated by the Trust Property Control Act 57 of 1998.

South African Law recognises three types of trusts, known as an Ownership Trust, a Bewind Trust, and a Curatorship Trust.

An Ownership Trust is a trust created by the founder who transfers ownership of assets or property to trustees to be held for the benefit of defined or determinable beneficiaries of the Trust. This Trust is also known as an 'Ordinary Trust' and is the most common trust in South Africa. This is also the only Trust we suggest to our members. The key elements to identify this trust are the trustees who are the actual owners of the trust assets, and the rights of the beneficiaries in respect of the trust assets are usually determined by the trust deed.

Bewind Trust is a trust where the founder makes a bequest to the beneficiaries and vests the administration of the assets in the trustees. The key elements to identify a Bewind trust is the beneficiaries are the actual owners of the trust assets and the trustees only have administrative control of assets which they manage for the benefit of the beneficiaries. The tax and risk implications that a vested right in a trust can have is the reason why we do not recommend this type of trust.

Curatorship Trusts is based on the same structure to a Bewind trust, except the key elements here is that the assets are administered on behalf of a beneficiary who does not have the capacity to manage his or her own affairs. This type of trust is a specialist field on its own. 

South Africa further describes trust according to when they were created. Inter Vivos (Living) Trusts are created during the founder's lifetime, where a Testamentary (Mortis Causa) Trust is set up in terms of the will of a person and will only be registered after his or her death.