People use trusts for a wide variety of purposes, even though they often do not know or understand the legal rules applicable to them, says Pieter Willem Moolman.

As a result, trusts are increasingly coming under scrutiny by our courts and you need to be confident that your trust deed is up to date and the trust documents in place.

An inter vivos trust, also called a family trust, is the technical name for a trust while you are still alive. The opposite is a testamentary trust, which comes into existence at death.

For many individuals an inter vivos trust is established as an estate planning tool, to avoid estate duty, to protect family assets, to pass on a family farm from one generation to the next or to hold investments for beneficiaries until they are old enough. 

If you are the founder of the trust, you are entitled to be appointed a co-trustee and to be nominated as a beneficiary in the trust deed.

In order to prevent yours from being labelled a “sham” trust, it is important to include at least one “independent” trustee.

An independent trustee is someone who is not related to the beneficiaries and who will not be influenced by the decisions of the founder or co-trustees.

To avoid trust assets being regarded as personal assets of the founder, it is important for the latter to make over ownership in all or part of his movable or immovable property to the trustees.

The founder therefore loses control of such assets. This was made law in a recent Supreme Court of Appeal decision wherein it was held that “the core idea of the trust is the separation of ownership (or control) from enjoyment”.

Trustees are appointed to receive, control and distribute trust property to nominated beneficiaries, in their discretion and in accordance with the powers given to them in the deed. Beneficiaries enjoy the benefits of the trust property.

In respect of trust property, the deed makes provision for trustees to obtain and grant loans, with or without interest. The loan accounts will be reflected in the annual financial statements and a loan agreement should be drafted setting out the amount, whether interest is applicable and repayment terms.

Although this is often disregarded, it is important as loans without an agreement can be interpreted as a donation and donations tax will become payable.

It is also important that the trust has a binding rental agreement for trust property that is being rented from or being leased by the trust. Trustees must sign a resolution wherein it is resolved that they agree on the trust entering into a lease agreement or granting a loan and wherein they authorise one of the trustees to sign the agreement as a representative of the trust.

The rental and loan agreements as well as resolutions are some of the trust documents that need to be in place when your trust is being looked at.

If after reading this you are less confident about your trust deed, it is possible that it is not up to date and needs to be reviewed.

Pieter Willem Moolman is the owner of PWM Financial Management in Port Elizabeth. Visit www.pwmfb.co.za or phone 041 582 3034.