Essential Requirements for a Valid Trust

Trusts can be used in a number of ways including being used as part of an estate plan or in plans drawn up for the protection of assets during someone's lifetime. In order to establish a trust the following are essential requirements.

• The founder must have a serious intention to create a trust.
• The key element of the trust arrangement is the transfer of control of the trust assets from the founder to one or more trustees, who hold the trust assets, not in their personal capacities, but for the benefit of the trust beneficiaries. The trust is essentially an arrangement that allows someone to hold assets for the benefit of the trust beneficiaries. The Trust Property Control Act describes a trust as an arrangement through which the ownership in property of one person is made over to another person, the trustee or trustees, to be administered for the benefit of the beneficiaries as described in the trust deed. 
• The trust property must be clearly identified.
•  The trust object must not be vague, but must be clearly stated and lawful.
•  There must be a binding obligation on the trustee(s) to administer and manage the trust property for the benefit of the beneficiaries.
•   In terms of the Trust Property Control Act the trustees must be authorised by the Master of the High Court to act as trustees and they must have legal capacity to act as a trustee (for example, in South Africa, when you turn 18, you are free to contract and conduct your own affairs without your parent or guardian’s assistance).
• There must be at least one beneficiary and a beneficiary could have discretionary rights or real rights depending on what the trust deed provides for.
• The trust beneficiaries must be clearly identified or easily identifiable. In other words, a beneficiary could be alive when the trust is formed, or a beneficiary has yet to be born
• Note that the Trust Property Control Act does not specify the requirements for the formation of a valid trust in South Africa. Accordingly, the Master of the High Court might have issued Letters of Authority to the trustees to act as such, and the Master might have assigned a registration number to the trust, but this does not necessarily make the trust a valid trust. That is why it is usually advisable to seek professional advice when a trust is formed. Many trusts fail when creditors argue that the trust was not validly formed, or when the South African Revenue Service (SARS) gives reasons why the trust is invalid. The validity of a trust is also often tested in divorce cases.

If you are considering the use of a trust please do not hesitate to contact us for professional advice in this regard.