Basic Business Law. Lesson 7. Smaller Business Entities

A trust deed or will is an agreement between the owner of assets and the
trustees of the trust stating that the latter will manage the assets with the
necessary care to the benefit of the trust beneficiaries. It is an effective and flexible way of making sure that
the assets remain in safekeeping and are managed objectively and controlled in the beneficiaries' best
interests by the appointed trustees.
Sometimes a trust will be the best business entity as when a trust is created to protect a child. Minor children
cannot inherit while they are minors, and their inheritance must be paid into the guardian's fund of the Master
of the High Court if there is not a testamentary trust.
It is also possible that a child cannot look after him or herself as a result of illness or an accident. A trust can
then be the ideal solution because if something happen to the parents the trustees can look after the child
and ensure that the required expertise to do so is available.
Unlike a company or a close corporation, a trust is not a legal entity. It is a unique organisation in that the
assets are transferred in the name of the trustees, not to their own benefit, but in their capacity as trustees.
Just like the director’s names must appear on the letterhead of a company, the trustees names must appear
on the official correspondence of a trust.
4.2. Types of trusts
Trusts are created primarily in two ways, namely through trust clauses in a will, known as the testamentary
trust, or a written agreement between the founder/donor and the first trustees during the founder's lifetime,
known as the inter vivos trust. The latter agreement is also known as a trust deed.
A trust is controlled by the trustees who act as a company director would. They make decisions on behalf of
the trust and must always conduct business in accordance with the provisions of the will and/or trust deed,
and the Trust Property Control Act.
Trusts classified on the basis of when they were formed.
Trusts can be formed during one's lifetime (known as a trust inter vivos), or after one's death based on
instructions contained in a will (known as a will trust or trust mortis causa).
Trusts classified on the basis of the rights they confer.
A "vesting trust" is one where the trust instrument stipulates when and how income and capital is to be
distributed to beneficiaries, where as a "discretionary trust" allows the trustees to decide when and how such
distributions are to be made, if at all.
Trusts classified on the basis of their structure.
• Ownership trusts. - The trust founder transfers ownership of assets into a structure that is to be
administered by a trustee for the benefit of one or more trust beneficiaries.
• Bewind trusts. - The founder makes a gift or bequest to the beneficiary and vests the administration
of the assets in the administrator or trustee. With this kind of trust, the trust beneficiaries acquire
ownership of the assets, with the trustee having only administrative control thereof.
• Curatorship trusts. - This trust is often similar in structure to a bewind trust, except that the assets
are administered on behalf of beneficiaries that lack the capacity to manage their own affairs, for
example a physically disabled individual.