A Guide to the registration of a trust in South Africa

A trust is a legal entity with separate and distinct rights, similar to a person or corporation. A trust allows someone to transfer the ownership of assets, both movable and immovable, to the trust, to be controlled by one or more persons, without those person owning them, but for the benefit of someone else.

Parties to a trust
The parties to a trust are:

  1. The Founder, who donates the property to the trust;
  2. The Trustees who are the custodians of the trust and control the assets held in the trust; and
  3. The Beneficiaries, who benefit from the assets held by the trust, or the income generated by the trust.

3.1 There are two types of beneficiaries, namely:

3.1.1    income beneficiaries; and
3.1.2    capital beneficiaries.

3.2    The difference is that income beneficiaries benefit from income generated by the trust, or the use of the assets held in the trust, whereas capital beneficiaries benefit from the distribution of the capital assets of the trust.

It is important to note that  since the landmark case of Land and Agricultural Bank of South Africa v Parker And Others 2005 (2) SA 77 (SCA), the Master of the High Court requires that at least one of the trustees be independent trustee and thus not related to the founder, other trustees or beneficiaries.

Types of trusts
There are three main types of trust recognised in South Africa, these are an inter vivos trust or living trusts, a testamentary trust and a bewind trust.
An inter vivos trust is a trust that is created by someone during their lifetime to manage certain assets or investments and for the benefit of beneficiaries which are usually their family members. The manner in which the beneficiaries benefit are either set out in the trust deed or in the absence of the aforementioned, by the discretion of the nominated trustees. This form of trust allows the assets held in the trust to remain in the possession of the family members of the founder and there will be no need to transfer the assets held in the trust when the founder passes away.


A testamentary trust is a trust that most South African are familiar with. This form of trust is created as a result of the death of someone who, in their will, requests that the trust should be created. This type of trust is usually created because the children of the deceased, to whom the deceased leaves his assets to, are minors. Where the beneficiaries are minors, the trust will hold the assets of the deceased on their behalf. In light of the fact that minor children cannot in terms of South African law inherit anything, in the absence of the registration of a trust, the assets left to the minor children are sold, and the money is paid to them when they reach adulthood.


A bewind trust is a trust where ownership of the trust assets is given to the beneficiaries of the trust, but control of the assets of the trust are still held by the trustees. This type of trust is usually created where a founder has numerous children as this type of trust allows for each child to share in the ownership of the assets held by the trust and prevents one single child from selling the assets without the consent of the other children. This type of trust protects the “family home”, especially in the light of South African culture, where there is uncertainty with regards to whom inherits the “family home” as culture has dictated in the past that this home should be left to the youngest family member of the home.

The benefits of a trust
The benefits of a trust include inter alia:

  1.  the assets held by the trust are protected by the trust. Protection is afforded due the fact that a trust has a separate legal identity and therefore when an individual is sued or sequestrated, the assets held in the trust are not affected as these assets do not form part of the estate of the person being sued or sequestrated.
  2. Trusts allow individuals to transfer assets to their heirs in a manner that avoids the costs and delays associated with the transfer of assets process. This is due to the fact that the assets held in the trust can be passed from generation to generation without having to transfer ownership to an individual and pay the transfer costs associated with this process. In addition, trusts can be structured to minimize estate taxes, which ensures that the beneficiaries receive the maximum inheritance possible. The fact that the property can be passed from generation to generation promotes continuity of the trust assets.
  3. Another benefit of a trust is that it offers greater privacy than a will. When a will is dealt with, it becomes a matter of public record due to the fact that the liquidation and distribution account needs to lay open for inspection by the public, which means that anyone can access it. Trusts, on the other hand, are not subject to this process and can be kept private.
  4. A trust is also flexible, which means it can be tailored to the wishes of the founder. An example of the aforementioned is that a trust can be created for the benefit of minor children as expressed above, or for the benefit of a disabled beneficiary, where assets are controlled on their behalf, but the income generated by the trust is paid to them.

Caution against the registration of a trust
As everything in life, there cannot be advantages without possible disadvantages. The possible disadvantages of the creation of the trust are the complexity of the trust. Trusts require careful planning and drafting and require the assistance of legal and financial professionals.
A further cautionary note is that when assets are placed in a trust, the founder who donates his assets surrenders ownership and control over those assets. In terms of the Trust Property Control Act,  the Common Law and the Trust Deed the trustees have a fiduciary duty to act in the best interests of the beneficiaries, with the care, diligence which can reasonably expected of a person who manages the affairs of another. The notion that a trustee has a fiduciary duty to act in the best interest of the beneficiaries is supported by case law. In the case of Sackville West v Nourse and Another,  it was held that whereas a person can take personal risks in managing his, her or its own investments and affairs, he, she or it has to take greater care when dealing with trust assets and avoid any business risk as far as possible. This view was confirmed in the case of Administrators, Estate Richards v Nichol and Another,  wherein which it was held that a person in a fiduciary position, such as a trustee, is obliged to adopt the standard of the prudent and careful person. It was further held that trustees cannot exempt themselves from this fiduciary duty.


Although the aforementioned is true, it is also true that the founder will not have direct control over how the assets are managed and places this control in the hands of the trustees, and although these trustees, as expressed above have a fiduciary duty to act in a manner that best deals with the trust assets, the founder nonetheless cannot control, in any manner, what the trustees deem to be in the best interest of the beneficiaries or the best manner to manage the trust assets.


The final cautionary note relates to the tax implications, particularly in relation to income tax and capital gains tax. In addition, if a trust is not set up correctly, it may be subject to estate taxes.

How to register a trust
Before a trust can be registered, the founder of the trust needs to ascertain the type of trust they desire to create based on the specific needs of the founder. Once the founder has decided on the type of trust they wish to create, the founder will nominate the trustees they wish to manage the trust assets and distribute the benefits of the trust to the beneficiaries. It goes without saying that the founder will also need to nominate the beneficiaries of the trust who will benefit from the trust and the manner in which they will benefit. All this information will need to be included in a deed of trust. Once the above has been done, the trust will need to be registered in the area where the trust is located.


A trust is registered at the office of the Master of the High Court. The documents to be lodged at the office of the Master of the High Court include two copies of the trust deed, proof of payment of the prescribed fee, the identity copies of the trustees, the identity copies of the beneficiaries, an acceptance of appointment as trustee by the trustees, information relating to the occupation of the trustees, information relating to the experience of the trustees, security by the trustees or an exemption by the Master of the High Court exempting the trustees from providing security, consent to act by an auditor and the name of the bank where the trust will operate its account.


As expressed above, one of the main documents to be drafted and lodged at the office of the Master of the High Court is the trust deed. It is important that the trust deed contains adequate provisions for the trustees to clearly know the bounds of their authority and actions, provisions on distribution of the benefits to beneficiaries, the holding of meetings, names of the beneficiaries and so forth. Due to the complexity of the trust deed it is advised that a knowledgeable professional Attorney draft the trust deed and register the trust at the office of the Master of the High Court.

Conclusion
Trusts can be a useful tool for asset protection, estate planning and continuity. Although anyone can adequately educate themselves on the benefits, possible disadvantages and the registration of a trust, it is important to note that the drafting of a deed of trust is a specialised skill and should be drafted in a manner that promotes the wishes of the donor, the protection of the assets and the financial wellbeing of the beneficiaries. For more information regarding the registration of a trust or for assistance with the registration of a trust we invite you to contact our office.

The Jurisprudence of Remote Piloted Aircraft Systems

drone

is South Africa ready?

The drone incident at Gatwick Airport in December 2018 has somewhat disrupted the aviation industry in the UK.

An estimated 1000 flights were cancelled and over 140 000 passengers were affected. The frustration experienced by government, business and ordinary citizens proved to be an uncomfortable, if hypothetical question to South Africa: would we be ready to handle such a disruption?

The use of Remote Piloted Aircraft Systems (RPAS), or drones as commonly known, is increasing worldwide and can no longer be ignored if we seek to not repeat the Gatwick incident. In South Africa, the RPAS are regulated by South African Civil Aviation Authority (SACAA). Legally, drones may be operated for commercial, corporate, non-profit and private operation.

Let’s look at private operations, as this is one area that is difficult to manage and enforce. Private Operations means the use of drones is for an individual’s personal use, where there is no commercial outcome, interest or gain. These operations can only be conducted in restricted visual line of sight referred to as class 1A or 1B RPA. Normally, class 1A and/or class 1B RPA is 400 metres height above the surface and cannot weigh more than 7 kgs.

Unlike commercial and corporate operations, private operations are not subjected to most of the regulatory rules or compliances. For example, there is no letter of approval required before operation, there is no need for the drone to be fitted with altimetry system capable of displaying to the operator the altitude and height and there is no need for the drone to be issued with a certificate related to personnel licensing, maintenance and logbook requirements.

However, there are important restrictions that must be observed by private operators when operating their drones. The pilot must observe all statutory requirements relating to liability, privacy and any other laws enforceable by any other authorities. Other notable restrictions include the following:

  • Cannot be operated in a 10km radius of an airfield
  • May be used during daylight in weather conditions which is clear
  • Not operated at a place of landing or take-off on a public road
  • Not operated within 50m or closer from any person or group of persons, any property without permission from the property owner

For private operators, they can be subject to either civil or criminal prosecution if they don’t comply with the above restrictions or if their actions infringe on privacy rights or lead to injury or death.

The most daunting challenge is do we have the capacity as a country to enforce these restrictions – is our aviation industry capable of managing potential disruptions, and will the judicial system be ready?