If you’ve chosen to establish a living trust to meet specific estate planning objectives, it is essential to ensure that the trust is legally sound and capable of withstanding scrutiny. Setup costs typically range from R10 000 to R30 000, and while the guidance of a fiduciary specialist is recommended, your direct involvement is crucial. From selecting trustees to drafting the trust deed, your participation will shape the structure and success of the trust. Here’s what the process involves.
As the founder, you may name your trust as you wish—with there being no need to reserve or register the name in advance. Unlike companies, which require name approval through the Companies and Intellectual Property Commission (CIPC), trusts are identified by a unique reference number issued by the Master of the High Court, and the registration process takes place through the relevant Master’s Office. Given that a living trust can offer protection against creditor claims, it is wise to avoid using your full name when naming the trust to enhance privacy and asset protection.
The type of trust you choose to establish should align with your estate planning objectives. For instance, a family trust may be commonly used to hold and protect assets intended for future generations, while a business trust may be more appropriate if your goal is to separate personal assets from high-risk commercial ventures. You will also need to decide whether to create a discretionary or vested trust, with the former allowing trustees flexibility to decide how and when to distribute income and capital, and to respond to changing circumstances. The adaptability of discretionary trusts makes them a popular choice for long-term planning. In contrast, a vested trust provides beneficiaries with fixed rights as clearly defined in the trust deed, leaving no room for discretion on the part of the trustees. While this offers predictability, it reduces flexibility and may limit the trustees’ ability to respond to future changes in beneficiaries’ circumstances.
It is also important to determine whether you intend to set up an ownership trust or a bewind trust, which again will depend on your estate planning goals. In an ownership trust, ownership of the trust assets vests in the trustees, who manage the assets in the best interests of the beneficiaries. Distributions of income and capital will take place from time to time, and the trustees will determine when the trust benefits vest in the beneficiaries. In contrast, in a bewind trust, the assets are owned by the beneficiaries but are managed on their behalf by the trustees until a pre-determined point when the beneficiaries can claim their share of the trust assets.
Appointing your trustees is one of the most important decisions when setting up a trust. As part of the registration process, you will need to submit the full names and contact details of your trustees, their relationship to all other parties to the trust—including yourself, the beneficiaries, and fellow trustees—as well as certified copies of their identity documents. Think carefully about the number of trustees to appoint; in practice, three is often ideal. This allows for efficient administration, helps avoid decision-making deadlocks, and facilitates practical matters such as signing documents, attending meetings, and representing the trust at SARS or the Master’s Office. The role of trustee carries significant legal and financial responsibility, so it is wise to include at least one individual with trust administration experience. Above all, trustees must understand their fiduciary duties and act in the best interests of the trust and its beneficiaries at all times.
Trusts are legal entities created and governed by documentation, with the trust deed forming the cornerstone of the trust’s structure and administration. Although all trusts are subject to the Trust Property Control Act, the deed sets out the specific terms under which the trust operates. For this reason, it is essential to obtain professional guidance when drafting the deed to ensure your intentions are clearly articulated. Trustees may only act within the powers granted to them in the trust deed, so it must comprehensively detail your objectives. Key inclusions should cover asset management, the scope of trustee authority, procedures for replacing trustees, meeting frequency, quorum requirements, voting rights, audit obligations, dispute resolution mechanisms, the trust’s intended lifespan, and how it should be wound up. A well-drafted deed is critical to ensuring the trust operates effectively and in accordance with your estate planning goals.
Your deed should also clearly identify the beneficiaries, either by name or by defining a group or class of beneficiaries – for example, your descendants. When using a class description, trustees must be able to clearly identify who qualifies; otherwise, the trust may be deemed invalid. As the founder, you may wish to have different intentions for each beneficiary. These can be recorded in your deed, specifying whether they enjoy discretionary or vested rights, and whether they are entitled to income, capital, or both.
When applying to the Master’s Office to register your trust, note that you must lodge the application with the Master within whose jurisdiction the majority of the trust assets are located. Your application must include the following:
- A covering letter to the Master of the High Court.
- The completed Trust Registration and Amendment Form (J401), which includes the trust name, details of the trust assets and their location, source of funds, number of trustees and their contact details, founder’s details, and whether the trust requires an annual audit.
- Two signed copies of the trust deed.
- A completed Annexure B form and proof of payment of the registration fee, which is currently R250.
- Completed Acceptance of Trusteeship Forms (J417) for each trustee, including personal details, relationships within the trust, whether they are also beneficiaries or independent trustees, their occupation, trust administration experience, and an undertaking confirming their knowledge of relevant legislation.
- If an independent trustee is appointed, a sworn affidavit by that trustee must be submitted.
- A Beneficiary Declaration Form (J450), listing all beneficiaries and indicating any incapacity or, for minors, guardian details.
- An Acceptance of Auditor’s Application Form (J405), signed by the appointed auditor (if applicable), confirming that they will oversee the trust’s financial affairs according to accepted accounting practices.
- Certified copies (not older than three months) of the identity documents of all trustees and beneficiaries.
Once the Master has approved the submitted documents, your trust will be issued with a unique number in the format IT XXXX/25, with the last two digits indicating the year of registration. Part of the number also identifies the Master’s Office of jurisdiction. Once formed, the Master will issue Letters of Authority, confirming that the trustees are authorised to act on behalf of the trust. Note that any transactions entered into before the Letters are issued are invalid.
After appointment, the trustees must open a bank account in the name of the trust, and the founder must transfer the assets into the trust—either by way of donation or sale. Until the assets are transferred, the trust does not legally come into existence. The trustees must also register the trust with SARS by completing the IT77TR form, after which the trust will be liable to submit annual tax returns.
Setting up a living trust is a strategic step in securing your legacy, protecting your assets, and ensuring long-term financial stability for your beneficiaries. While the process requires careful planning, legal compliance, and ongoing administration, the benefits of a properly structured trust can be far-reaching. By working with experienced professionals and maintaining a clear understanding of your responsibilities as a founder or trustee, you can ensure that your trust serves its intended purpose both now and for generations to come.
Have a super day.
Sue
