If you’ve decided to set up a living trust to achieve a set of pre-determined estate planning goals, it is important to make sure that your trust is set up as a valid legal structure that will, if necessary, withstand legal scrutiny. The upfront costs of setting up a trust can range between R6 000 and R12 000 and, while the process is best navigated with a fiduciary specialist, your active involvement and decision-making are required. Here’s what setting up your living trust will entail.
As the trust founder, you are free to give your trust any name you choose without having to first reserve a name. This is because trusts are identified by a unique number and not by their name. Whereas when registering a company you will have to apply to the Registrar of Companies for name approval, no such requirement exists when it comes to trust registration, and the registration process of your trust will take place through the Office of the Master of the High Court. Remember, a living trust can be used to protect assets from claims by creditors, so think carefully before using your name and surname when naming your trust.
The type of trust you intend to register will hinge on the estate planning objectives that you hope your trust will achieve. For instance, a family trust can be used to house and protect property or assets intended for future generations, whereas you may want to create a business trust to protect your personal assets from high-risk business ventures. Depending on your objectives, give thought as to whether your trust will be discretionary in nature, whereby your trustees can exercise their discretion when it comes to distributing capital and income from the trust. This type of trust provides trustees with a greater element of flexibility when faced with future, uncertain events. On the other hand, in a vested trust, the trust deed clearly sets out the vested rights of the beneficiaries, and the trustees do not have discretion over how and when the income and capital of the trust should be distributed. This type of trust is less flexible in nature as it does not provide trustees with the ability to exercise their discretion should events necessitate a different course of action. It is also important to determine whether you intend to set up an ownership or bewind trust and, again, this will depend on your estate planning goals. In an ownership trust, ownership of the trust assets vests in the trustees who then 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 if and when the trust benefits vest in the beneficiaries. On the other hand, 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 at which the beneficiaries can claim their share of the trust assets.
Choosing your trustees is an important step in the process, keeping in mind that when registering your trust, you will be required to register the names and contact details of your trustees, their relationship to all other members of the trust – including you, your beneficiaries and the other trustees, and provide copies of their respective IDs. Give thought as to the number of trustees you intend to appoint, bearing in mind that three trustees are generally considered a good number when it comes to practically managing the affairs of the trust, breaking deadlocks in decision-making, expediting the decision-making process, obtaining signatures, attending meetings, and attending to matters in person, such as appearing before SARS and at the Master’s Office. The job of a trustee requires specific legal and financial knowledge and it is, therefore, advisable to ensure that at least one of your trustees has experience in trust administration. It is important that your trustees fully appreciate the enormous responsibility that comes hand-in-hand with trusteeship as well as the nature of their fiduciary duty in relation to the trust and its beneficiaries.
Trusts are creatures of document and, while all trusts are governed by the Trust Property Control Act, your trust deed forms the foundation upon which the trust and its assets will be administered. As such, it is critical to seek professional advice when drafting your trust instrument to ensure that your intentions for the trust, the powers and duties of your trustees, your beneficiaries, and the administrative procedures of your trust are carefully reduced to writing. Remember, your trustees can only act within the mandate set out in the trust deed, so you need to ensure that all your intentions and objectives are correctly and adequately expressed in the deed. Your trust deed should therefore include detail as to how the assets should be administered, the decision-making powers of the trustees, how trustees should be replaced if necessary, how often meetings should take place, what constitutes a quorum, voting rights and decision-making powers, whether the trust needs to be audited, how dispute resolution should be dealt with, the duration of the trust, and the procedures to be followed on termination of the trust.
Your trust deed should also clearly nominate and identify the trust beneficiaries, keeping in mind that this can be done either by naming the beneficiaries or by defining a group or class of beneficiaries, such as your descendants. When naming a group or class of beneficiaries, your trustees must be able to clearly identify the beneficiaries, failing which the trust may be deemed invalid. As the trust founder, you can have different intentions for each beneficiary which can be set out in your trust deed, wherein you can indicate whether you intend for them to enjoy discretionary or vested rights, or whether they should benefit from the income and/or capital of the trust.
When applying to the Master’s Office for registration of your trust, keep in mind that your trust must be registered at the Master’s Office in whose jurisdiction the largest portion of the trust assets are situated. When submitting the required documentation to the Master of the High Court in support of your trust registration, 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 sets out, amongst other things, the name of the trust, details regarding the trust assets and their location, the source of funds, the number of trustees plus their contact details, details of the trust founder, and whether an annual audit of the trust is required.
- Two signed trust deeds.
- Completed Annexure B form plus proof of payment of the registration fee which at present is R250.
- Completed Acceptance of Trusteeship Forms (J417) in respect of each trustee. This form includes the personal details of each trustee, their relationship to the other parties to the trust, whether they are also a beneficiary of the trust, whether they are an independent trustee, their professional occupation, any previous practical experience in trust administration, and an undertaking that they have knowledge of the Trust Property Control Act and related legislation.
- Where an independent trustee is appointed, a sworn affidavit by that trustee must be lodged.
- Beneficiary Declaration form (J450) which lists the beneficiaries of the trust, indicates whether the beneficiary is incapacitated, and in the case of a minor, lists the details of the minor’s guardian
- Acceptance of Auditor’s Application Form (J405) which is signed by the trust’s auditor (where applicable) undertaking to administer the financial affairs of the trust in accordance with accepted accounting practices.
- Certified copies (not older than three months) of all trustees and beneficiaries.
Once the Master has approved the above-listed documentation, your trust will be issued with a number following the format IT XXXX/22, with the last two digits referring to the year that your trust was registered in, while part of the unique number will denote which Master’s Office the trust is registered under. Once formed, the Master will issue what is referred to as the Letters of Authority which is the written confirmation that your trustees are authorised to act on behalf of the trust. Remember, any transactions entered into before the issuing of these formal mandates will be invalid. Once formally appointed, the trustees must open a bank account in the name of the trust, whereafter the trust founder must transfer the assets into the trust either by way of donation or sale, failing which the trust does not come into existence. The trustees are also required to register the trust with SARS by completing the SARS IT77TR form, following which they will be required to submit annual tax returns for the trust.
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