Most people think of trusts only for kids who inherit money but are too young to handle it. But trusts are much more versatile than that! They can be used in many different ways, like a will, but with unique advantages. This article will explain the different kinds of trusts and how they can help businesses.
The purpose of a trust is usually to hold assets for the benefit of certain persons or entities being the beneficiaries or the business for which the trust is created. Holding assets in a trust creates a certain level of protection for the assets in circumstances where the beneficiary or trustee thereof may become insolvent. This is because a trust is seen as a separate legal entity and assets found therein may not be attached where the beneficiary or trustee of a trust finds themselves insolvent.
When looking at a trust one must be aware that there are three main parties to a trust. The first being the founder, the second the trustees, and finally the beneficiaries. The founder is the one who created the trust. The trustees are the ones who control and administer the assets in the trust. The beneficiaries are the ones to whom the benefits of the assets in the trust accrue to. It may be possible for more than one role to be held by a single individual. However, it should be noted that where a trading trust or family trust consists of persons holding multiple positions, being the founder, trustee, and beneficiaries, this is seen as an irregularity. The trust may then be seen as a sham and would no longer be legally enforceable, thus the protections afforded to the assets put into the trust would no longer stand. In the case of Land and Agricultural Bank of South Africa v Parker the court found that trusts are created to protect the weak, being the beneficiaries. Thus, a trustee accepts the responsibility of safeguarding the assets on behalf of the beneficiaries.
There are two main types of trusts, an ordinary trust, and a bewind trust. An ordinary trust is one in which ownership and control of the trust are in the hands of the trustees. A bewind trust is where the beneficiaries of a trust have ownership of the assets, but such assets are under the control of the trustees. A business trust is merely an ordinary trust which serves to protect the assets of a company and allow it to trade. A business trust allows the trustee to have the power to trade with the assets placed in the trust. It also allows for the beneficiaries to have the right to sell their interest. These two factors separate business trusts from all other trusts as ordinarily, a trustee may not expose trust assets to fiduciary risks.
Should you have any further queries or require assistance with any commercial-related matters contact us and we will gladly assist.
Saeedah Salie
saeedah@bbplaw.attorney
Associate
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