Formation of trusts in South Africa

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A trust exists when the founder of the trust has handed over or is bound to hand over to another the control of property which, or the proceeds of which, is to be administered or disposed of by the other (trustee or administrator). Anyone who has the capacity to undertake contractual obligations or to make a will may create a trust. In addition, a trust may be set up by the court, by statute, or by statutory authority. In each case, however, an intention to create a trust must be present:

By means of an agreement

This trust is created by means of a stipulatio alterio. Inter vivos trust comes into existence through a contract between the trust founder and trustee which contains stipulations in favour of a third party. The beneficiaries acquire certain rights in the trust property only when they accept the benefit of the stipulation. Where there is no acceptance, there is no right (Crookes v Watson 1956 (1) (SA) 277 (A)).

By means of a will

In the case of a trust created by a will, the trust is formed by a testator bequeathing assets either to the beneficiaries, but because of incapacity such as when a minor is a beneficiary, the testator then also appoints trustees to administer the property so bequeathed to the minor, or the testator bequeaths assets to the trustees to administer it for the benefit of the beneficiaries (usually subject to some conditions and discretionary powers given to trustee). A testamentary trust must at all times comply with the formalities prescribed by the Will Act 7 of 1953.

By means of a court order

Although in some instances the court can be regarded as the founder, the initiative for creation usually comes from the parties seeking the order. Such a trust is normally created to address a particular problem such as the awarding of damages, or an amount of compensation to a person who is not capable of handling his own affairs or in a divorce where the parties seek to protect a family asset such as a house for children. In all these instances the tax implications (such as donations tax, transfer duty, capital gains tax and income tax) cannot be ignored and the trust deed as well as the passing of any funds or assets to the trust need to be structured very carefully in order to retain the protection qualities of a trust.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein.  Our material is for informational purposes and should not be construed as legal advice.

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