How Does a Trust Work in South Africa
What is called a trust?
A trust is a fiduciary arrangement that enables a trustee or third party to hold assets on behalf of one or more beneficiaries.
What are the types of trusts in South Africa?
There are basically 2 types of trusts:
1. Testamentary (Mortis Causa) Trusts
2. Living (inter vivos) Trusts
How does a trust work in South Africa?
The ownership and management of the trust assets are transferred from the donor or founder to one or more trustees, who hold the assets not in their individual capacity but instead for the benefit of the trust beneficiaries. This is the main component of the trust structure.
The Trust Property Control Act of 1988 regulates trusts. The trust deed, which outlines the trust’s governing principles, powers, and restrictions, serves as its constitutional document. Trusts must typically be registered with the Master of the High Court in the applicable jurisdiction where the trust’s assets are located. Trustees can only take action after receiving letters of authorization from the Master.
What are the benefits of a trust in South Africa?
1. A trust minimizes liability and offers asset protection.
2. It protects the beneficiary’s assets’ secrecy and privacy.
3. Trusts protect a family’s wealth from divorce.
4. Trusts can be effective for protecting a young person’s or family unit’s income or assets since they separate the control of an asset from the asset’s owner.
5. Trusts allow for flexible beneficiary allocation of returns and capital gains.
What are the drawbacks of a trust?
1. It is costly to establish and maintain. Most banks and law firms function as the trustee and need to be compensated.
2. The structure is more complicated and difficult to understand.
3. Loss of ownership and control of assets.
