Different trusts give beneficiaries different rights, depending on how much a trustee wishes to distribute of an income, assets, or capital to beneficiaries.
The key element of a trust arrangement is the transfer of ownership and control of the trust’s assets from the founder to one or more trustees, who hold the trust’s assets for the benefit of the trust’s beneficiaries, not in their personal capacities.
South African law recognises three types of trusts – ownership trusts, bewind trusts, and curatorship trusts.
Under an ownership trust, the trust founder or settler transfers ownership of assets into a structure that is to be administered by a trustee for the benefit of one or more trust beneficiaries. This is the most common form of trust and is also known as an “ordinary trust”.
- The trustees are the actual owners of the trust assets.
- The rights of the beneficiaries in respect of the trust assets are usually determined by the trust deed.
There are two subcategories of the ownership trust:
- Discretionary trust: this is where the trustee may occasionally exercise his/her discretion in order to vest the trust assets (income or capital) in the beneficiary.
- Vesting trust: this is where the rights in respect of the trust assets automatically vest in the beneficiary (without the trustee having to exercise a discretion).
This is created when the founder or settler makes a bequest to the beneficiaries, but control over the assets or property is given to the trustee(s).
- The assets vest in the beneficiaries
- The trustees only have administrative control of the trust assets that they manage for the benefit of the beneficiaries until the assets are transferred to the beneficiaries.
In practice, a bewind trust may be used in the form of an investment trust, which is often a business trust as well. A firm would buy their own building in the name of a trust, but the partners and family members will be the beneficiaries of the income of the trust.
This is similar in structure to the bewind trust, except that the assets are administered on behalf of beneficiary who does not have the capacity to manage his/her own affairs; for instance, a curator placed in charge of a person with a disability, or someone with a gambling problem who cannot manage their funds.
In matrimonial matters, curators could be used to safeguard the interests of minor children, where such interest often form the very conflict between parents and which may not always be properly protected by an overworked family advocate.
See related article: Does a trust have to be registered?