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TRUSTS 1. What are the different types of trusts?
2. What is a vested trust?
3. What is a discretionary trust?
4. Should my trust be registered for tax, even if it has no income?
5. Will my trust be a Vat vendor?
6. What is a statement of intent?
7. Can a trust hold shares in a company?
8. Can a trust hold membership of a close corporation?
9. What conditions must be met for a trustee of an inter vivos trust to hold membership of a close corporation?
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1. What are the different types of trusts?
Inter Vivos Trust
A trust that is registered and becomes operative by the transfer of assets by the founder, during his lifetime, by way of a trust deed.
Testamentary Trust
A trust that comes into existence upon a testator’s
death and is established in terms of his testament.
Mortis Causa Trust
A trust that comes into being contractually. It is only
effective and registered upon the founder’s death.
Bewind Trust
A trust that is established on the basis that ownership
of the trust assets vests in the beneficiaries of that
trust, while the management and control over trust
assets remain with the trustees. In practice, a bewind
trust is used as a business trust where the trust is
involved in some form of trade.
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2. What is a vested trust?
A vested trust is a trust that is established on the basis that ownership and control of the trust assets lie with the trustees. The beneficiaries only have personal rights to claim their portion of the trust benefits upon the fulfilment
of a certain condition.
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3. What is a discretionary trust?
A discretionary trust is a trust that is established on the basis that ownership and control of the trust assets lie with the trustees. The beneficiaries have no right to claim the trust benefits until the trustees have exercised their discretion in favour of paying over such benefit to the beneficiaries
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4. Should my trust be registered for tax, even if it has no income?
Practice Note 21 (1 June 1994) states clearly that all inter vivos trusts must register with SARS, even if the trust won’t be subject to income tax. A trust is registered as a provisional taxpayer and the trustees are obligated to complete and submit the regular provisional and annual tax returns (even if the return is nil).
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5. Will my trust be a Vat vendor?
The Vat Act recognises trusts and makes provision for them to be registered as Vat vendors. All the rules that apply to other trading entities will apply to trusts.
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6. What is a statement of intent?
The estate owner sometimes compiles a statement of intent (also known as letter of wishes). This is the personal direction he gives to the trustees to carry out certain wishes after his death. This statement is not legally binding on the trustees and may be ignored, but it gives the trustees some guidance in the exercise
of their discretionary powers.
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7. Can a trust hold shares in a company?
Company shares can be held by a trust. However, the Companies Act states that a company is not obliged to see to the execution of any trust as regards any of its shares. Therefore, many listed companies will invariably not allow shares to be registered in the names of trustees in their representative capacities, making it difficult to identify the shares as trust property.
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8. Can a trust hold membership of a close corporation?
Before the Close Corporations Amendments Act 2005 membership was limited to exclude inter vivos trusts. The amendment provides that “a natural or juristic person in the capacity of a trustee of an inter vivos trust may be a member of a corporation” provided certain conditions are met.
The trustee will be the member of the close corporation,
not the trust. A trust is not a legal person, so in the
absence of a specific statutory provision indicating
otherwise, the name of the trustee representing the
trust’s interests must be disclosed in relation to trust
matters.
Next to his name it should be clearly indicated that such
person is acting as a trustee. Remember, the trustee
won’t be acting as a principal or beneficial owner.
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9. What conditions must be met for a trustee of an inter vivos trust to hold membership of a close corporation?
The following four conditions must be met:
- A juristic person can’t be a beneficiary of the trust.
This means that even if a juristic person (such as a
company or close corporation) is the discretionary
beneficiary of a trust, then a trustee of such a trust
can’t be a member of the corporation.
- The close corporation is not obliged to observe or to
be bound by any clauses in the trust deed.
- The close corporation has no obligations in terms of
the trust deed. In other words, beneficiaries can only
look to trustees for their rights, not to the corporation
itself.
- If at any time the number of beneficiaries of the trust
who are entitled to receive any benefit from the trust,
when added to the number of members of the
corporation, is greater than ten, the membership of
the trustee shall cease. Once membership ceases in terms of this condition, no trustee of that trust will
ever again be eligible for membership of the trust
even though the number becomes ten or less.
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