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Three things you need to know about setting up a family trust

A trust can be used as a solution to ensure the transfer of wealth across generations in a cost-effective way, says the writer. Picture: Freepik

A trust can be used as a solution to ensure the transfer of wealth across generations in a cost-effective way, says the writer. Picture: Freepik

Published Nov 10, 2023


By Mariska Redelinghuys

Trusts remain one of the most effective estate planning tools for families, but setting up a trust is not a one-size-fits-all solution.

The suitability of a trust for your family will depend on your family’s particular needs and circumstances.

Different trusts for different needs

A trust can be used as a solution to ensure the transfer of wealth across generations in a cost-effective way. One option for achieving this is by setting up an inter vivos trust during the founder’s lifetime and transferring assets to the trust, traditionally via a loan account.

An alternative is to set up a trust for this purpose in the founder’s last will and testament. Assets can also be protected for future generations by keeping them in trust. Assets in trust are protected from claims by creditors against individual trust members, including divorce claims.

Before setting up a trust, it is imperative to seek the advice of a professional. A financial adviser will help you identify your family’s financial goals and develop an agreed-upon financial plan to help you reach them.

During this process, an adviser can guide you on whether a family trust is suitable for your family financial plan and, if so, advise on the best way to structure it.

Setting up a trust

Creating a trust starts with drafting a trust deed, which is a contract between the founder and the trustees for the benefit of income- and capital-beneficiaries of the trust.

The trust deed contains important provisions regarding the administration of the trust, such as the prescribed number of trustees and the requirements for making valid decisions about the trust’s assets.

It also sets out the duties and responsibilities of the trustees and describes how the trust’s income and capital must be distributed.

As with any binding agreement, it is imperative that the trust deed be drafted by a professional to ensure that the purpose of the trust is served.

The trust deed must be registered with the Master of the High Court (‘the Master'), who must also approve the appointment of the trustees by issuing a letter of authority to the trustees.

The trustees may not act on behalf of the trust or make any decisions regarding the trust’s assets until they receive the letter of authority.

Selecting the right trustees is arguably the most important step in setting up a trust. The trustees have a fiduciary duty to manage the trust’s assets with due care and skill and in the best interests of the beneficiaries.

Make sure that the persons you identify as potential trustees will be able to carry out this duty.

Bear in mind that if all of the trustees are also beneficiaries of the trust and all the beneficiaries are related to each other, it is a requirement of the Master’s Office to appoint an independent trustee to act together with the other trustees.

An independent trustee is described as an independent outsider who understands the responsibilities of trusteeship and who accepts the appointment to ensure that the trust functions properly and the provisions of the trust deed are adhered to.

Although an independent trustee does not have to be a professional in a related field, such as an attorney or an accountant, it is certainly advisable to seek the services of a corporate trustee, such as PSG Trust, to take up this appointment.

There are two reasons for this, namely that (1) a professional trustee is experienced in all matters of trust administration, and (2) recent legislative amendments have resulted in additional regulatory requirements that trustees must adhere to.

Seek the advice of a professional

Make sure that you protect your wealth for generations to come by speaking to a certified financial adviser about how a trust can form part of your family’s financial plan.

Mariska Redelinghuys, Legal Specialist: Advice, PSG Wealth.

*The views expressed here are not necessarily those of IOL or of title sites.

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