Setting up a trust fund

Setting up a trust fund is not only for the rich and famous. We chat to Jaco Louw, Head of Legal Marketing at Liberty, about its benefits.

Who can set up a trust fund?
A trust can be set up by anyone, either in your will, known as testamentary trust, or whilst you are alive, known as an inter vivos trust. In essence, the founder of the trust enters into an agreement/contract with the appointed trustees of the trust, in which all or some of the founder’s assets are transferred either at his death or while he is alive to those trustees. The agreement (trust deed) will set out how these assets are to be administered by the trustees for the benefit of the beneficiaries nominated in the trust deed.
In the case of a testamentary trust, a husband, for example, can set up such as trust for the benefit of his wife and children. In this way, a certain amount of control can be exercised over the assets and at the same time afford protection to the assets should any of the beneficiaries become insolvent. The trust can be set up to provide income to the beneficiaries, with assets such as property, cash, business interests, shares etc being preserved for future generations. In this manner the passing of a beneficiary will have no effect on the trust assets.

What are the benefits of setting up a trust fund?
Trusts, in general, should be established for protection of assets as the primary reason. Parents concerned for the wellbeing of their children could determine in their will that all their assets should be placed in a trust for their minor children in the event of their simultaneous deaths. This will prevent their assets falling into the Guardians Fund, which is a government-established initiative that provides limited access to the funds while the children are minors and which is quite restrictive as to the possible investment choices available.
A trust can also be established while the founder is still alive, where the assets are transferred into the trust during the lifetime of the founder. If the trust is set up properly, the trust arrangement will protect the assets against any possible claims relating to insolvency, among other things. The growth of the assets will also take place in the trust, limiting the estate duty tax payable on the death of the founder.
The founders of the trust can nominate credible family members, friends and preferably an independent third party to act as trustees of the trust. These trustees will look after the asset property and act in the best interest of the beneficiaries.

What is the legislation around trust funds in SA?
The Trust Property Control Act governs the formalities around trusts in general. The Income Tax Act and other acts pertaining to the different taxes payable in SA also have a large impact. Because trusts are so embedded in our law, there are several other laws that make reference to them. The common law also applies and we do have strong precedent in case law dealing with the treatment of trust for tax purposes, insolvency, divorce claims and other legal principals.