Trusts are regulated in terms of the Trust Property Control Act No. 57 of 1988. There are two main types of trusts available in South Africa, namely, an inter vivos trust and a testamentary trust. The main distinction between the two is that an inter vivos trust is established by the founder during his or her lifetime, whereas, a testamentary trust is contained within one’s Will and Last Testament and thus, comes into existence only upon the death of the testator/testatrix.
What is an inter vivos trust?
An inter vivos trust is a written contract entered into between two or more persons, one of these persons being the founder of the trust, and the remainder being the first trustees, with the purpose of transferring certain assets to the trustees for holding, administering and distribution for the benefit of a third party or parties, known as beneficiaries. An inter vivos trust can be utilised for various purposes, some of these include; maintaining and protecting property for the benefit of one or more beneficiaries, reducing estate duty, limiting liability, protecting income, protecting property from creditors or spousal disputes, savings on Income Tax, and so forth. While trusts are advantageous in many respects, they can pose a certain challenge for the parties. This is particularly relevant when it comes to compliance with the applicable laws, the maintaining of accurate records, the avoidance of the “alter ego” principle, as well as understanding the associated costs and tax implications.
The first step in forming a trust is to identify the relevant parties involved, namely, the founder, the trustees and the beneficiaries. The founder creates the trust with the intention of transferring ownership and control of certain assets for the benefit of the beneficiaries. Often, the founder is responsible for the initial donation to the Trust, this can be an amount as minor as R100.00.
The trustees are required to administer the trust in the interest of the beneficiaries and in accordance with the terms of the Trust Deed and the applicable laws. The Master may require that an independent trustee be nominated, this is a trustee who is not related to any of the trustees or beneficiaries and should accordingly, act independently. The auditor/accountant of the trust can be nominated as an independent trustee so long as he or she is not related to any trustee or beneficiary of the trust.
Following the identification of each party, the trust deed (the valid and written contract being entered into) will be drawn up giving effect to the purpose of the trust. The trust deed is required to, inter alia, identify and stipulate the duties of the trustees, define the assets transferred to the trustees, identify the beneficiaries and their respective interests (capital, income or both).
Lodging of documentation and registration
The original, duly signed and witnessed Trust Deed must be lodged at the Master’s Office for the registration of a trust, along with the following documentation:
- The Trust Registration Form (J401);
- The Acceptance of Trusteeship (J417) for each trustee (accompanied by an original certified ID copy for each trustee);
- Sworn Affidavit by Independent Trustee (if applicable);
- The Acceptance of Auditor/Accountant (J405);
- Beneficiaries Declaration Form (J450);
- Original certified ID copies of each beneficiary;
- JM21 forms;
- Proof of Payment for the registration fee;
- Bond of security by the trustees (J344) (if required by the Master);
- Final Certified Court Order (if applicable).
The JM21 form states the case for consideration by the Master of the High Court. The information contained in this document, includes (but is not limited to), the name and age of beneficiaries, the professions or business occupation of each trustee, previous trust administration experience of each trustee (mentioning specific examples), the name and branch of the bank where the trust account is to be opened, confirmation that the majority of the assets will be located in the jurisdiction of the Master of the High Court and the probable duration of the trust
Jurisdiction and Master’s Registration Fee
The trust is to be registered with the Master of the High Court in the jurisdiction where the majority of the assets will be held and a fee of R250.00 must be paid for the registration of a new trust. Upon receipt of the trust documentation, the Master of the High Court will allocate a registration number to the trust deed and issue a Letter of Authority so long as all the lodged documentation is in order.
The drafting and compilation of the relevant trust documentation is no simple feat. One needs to be familiar with the various laws applicable to trusts, cognisant of the developments in the field of trust law and alive to any amendments to the Master’s requirements for the registration of trusts. It is therefore paramount that the advice and assistance of a professional is sought in order to ensure that the trust assets are adequately protected and that the trust deed is a valid and practical one, as well as to ensure continued compliance. Should you require any legal advice or other assistance regarding the administration or establishment of trusts, please contact one of our attorneys directly and we will gladly assist you.