Some Useful Definitions
Types of Trusts
There are a number of ways how trusts types in South Africa can be classified.
This includes the following classifications:
An “ownership trust”, under which the founder or settlor transfers ownership of assets or property to a trustee(s) to be held for the benefit of defined or determinable beneficiaries of the trust.
A “bewind trust”, under which the founder or settlor transfers ownership of assets or property to beneficiaries of the trust, but control over the assets or property, is given to the trustee(s).
A “curatorship trust”, under which the trustee(s) administers the trust assets for the benefit of a beneficiary that doesn’t have the capacity to do so, for example, a curator placed in charge of a person with a disability.
Trusts can be described in various ways:
The way in which they are formed:
- Inter vivos trust is created during the lifetime of a person
- Mortis causa (testamentary) trust is set up in terms of the will of a person and comes into effect after their death
The rights they give beneficiaries:
- Vesting Trust – the income (both of a revenue and capital nature) or assets of the trust are vested in the beneficiaries. The beneficiaries have the vested rights to the income or assets of the trust.
- Discretionary Trust – the trustee(s) usually have the discretion whether to and how much of the income, assets or net trust capital of the trust to distribute to the beneficiaries. In these circumstances the beneficiaries only have contingent rights to the income, assets or net trust capital of the trust.
A combination of both vested and discretionary rights are also possible.
Trusts can be used for several purposes, for example:
For tax purposes the following types of special trusts are recognised:
Special Trust Type A – a trust created solely for the benefit of a person(s) with a “disability”, as defined in section 6B(1), where the disability makes it impossible for the person(s) from earning enough money for their care or from managing their own financial matters.
Special Trust Type B – a trust created solely for the benefit of a person(s) who is a relative of the person who died and who are alive on the date of death of that deceased person (including those conceived but not yet born), and the youngest of the beneficiaries is younger than 18 years on the last day of the year of assessment.
Top Tip: The various ways of describing trusts are not mutually exclusive. For example, an Inter vivos trust can be both a Special Trust Type A and a discretionary trust; and a testamentary trust can be both a Special Trust Type B and a discretionary trust.