A Trust is a legal arrangement whereby control over property is transferred to a person or organisation (the trustee) for the benefit of someone else (the beneficiary). A trust is governed by the terms of the trust document, which is usually written and governed by local law. Trusts are governed by the common law and the Trust Property Control Act No 57 of 1988.
Typical Characteristics
The property of a business trust is managed and controlled by trustees who have a fiduciary duty to the beneficiaries to act in their best interests. Profits and losses resulting from the use and investment of the trust are shared proportionally by the beneficiaries according to their interests in the trusts. Trusts are created for a variety of reasons, including tax savings and improved asset management.
What are the pros and cons of operating as a Trust?
Advantages:
- Limited liability
- Continued existence – the trust can continue even if there is a change in trustees
- Limited regulations
- A trust doesn’t pay tax on profits distributed as benefits to beneficiaries
- However, the beneficiaries are taxed on their applicable tax schedule
- A trustee cannot expose the assets to business risk
Disadvantages:
- The lack of regulation and disclosure creates risk for insiders and third parties who deal with the trust
- Information about the trust is not publically available
- Trustee and other parties are not personally liable for debts of the trust
What are the steps involved in registering a Trust?
- The trust deed is the founding document of a trust
- An original founding document is required.
- It’s recommended that a reputable firm of attorneys, with experience in trust law, should be approached.
- The attorney will advise on the drafting of the trust deed, registration of the trust deed and obtaining letters of authority from the Master of the Supreme Court.
- Nobody may act as a trustee until authorized by the Master of the Supreme Court.
