What exactly is a trust?

Whilst a trust is an entity separate from an individual, and quite distinct from an individual, it does not enjoy separate legal personality in the way that a company or a close corporation does, since it is not a creature of statute, but rather the product of a contractual arrangement. Trusts are, however, recognised in a number of important statutory provisions including, for example, The Insolvency Act, The Income Tax Act, The Deeds Registry Act and The Transfer Duty Act.

The basis of the trust and its very existence is subject to what is known as its Trust Deed. In essence, a trust is formed by a so-called Founder, who need make only a nominal donation to the trust in order to establish it.

The control of the trust, however, vests in the trustees who are nominated and empowered by its Trust Deed to conduct its affairs and meet its stated objectives which, in the case of a discretionary non-commercial trust, for example, would be to look after and control the trust assets to the advantage of beneficiaries nominated under the trust. It is possible for the person who forms the trust (the donor) to also be both a trustee and a beneficiary of that trust although, as mentioned in a previous installment, it is imperative that the affairs of the trust be placed under the control of trustees who are seen to be dealing objectively and at arm’s length with the affairs of the trust. In other words, that the trust is not simply an ‘alter ego’ for the donor.

Whilst not enjoying statutorily recognised legal personality, a trust is nonetheless capable of possessing and owning any asset, including immovable property, and it is also capable of holding a member’s interest in a close corporation or shares in a company.

It should now have become evident that a trust enjoys the benefit of considerable flexibility, and that there is very little that one can do in their personal capacity which cannot also be done through a trust, which creates its own unique form of ‘limited liability’, but which also brings numerous additional tax estate planning and other benefits, some of which we have already dealt with.

In part 4 of this series, we will specifically focus on the myriad tax and other benefits which flow from conducting one’s affairs through the medium of a trust. Don’t miss it!