First, trusts are described based on when they are created. This includes two types – inter vivos (living) trusts and testamentary trusts.
- Testamentary trust: These trusts are generally used to protect assets of minors or people who are not capable of looking after their own interests. Usually, the will directing the registration of a testamentary trust also contains a clause to determine the termination of the trust. This might be connected to a certain time period or a specific future event.
- Living trusts: These trusts are created by agreement between living people. They are very useful for keeping assets for generations on end. The Founder establishes the trust during his/her lifetime; this constitutes an agreement between him/herself and the trustees. The five types of living trusts are: Family Trust, Guardian’s Trust, Umbrella Trust, Charitable Trust, and Special Trust.
Following these descriptions, there are three types of trusts that are recognised by South African law:
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.
Read more: Ten things to know about trusts.