Okey dokes… In our last financial planning article we discussed the first way in which trusts are classified, namely…whether the founder of the trust is dead or alive at the time of setting up the trust.

In today’s article we are going to look at the second classification of trusts which is based on two things:

1. The rights of the beneficiaries, and
2. Who owns the property within the trust

Trusts in the strict sense

This type of trust is commonly used in estate planning, and is what most of us commonly refer to as a trust.
Here all assets, liabilities, rights and duties “belong” to the trustees. The trustee is the owner and administrator of the trust assets… but only from an administrative point of view, of course.

Trusts in the wide sense (Bewind trusts)

With this type of trust the beneficiary has a right to the assets contained in the trust right from the word go. The trustees administer and control the assets on behalf of the beneficiaries, but the beneficiary retains full ownership.
Because the beneficiary has a right to the assets contained in this type of trust, these assets could be exposed to claims made against the beneficiary by creditors. With trusts in the strict sense this cannot happen since ownership of assets lies with the trustees and not with the beneficiaries.

The trustee controls the assets of the trust on behalf of a beneficiary who might be too young or mentally (and physically) incapable of controlling his or her own assets.
An example of a bewind trust would be where a minor inherits a property which is then given to trustees to administer on behalf of the minor until he or she reaches a certain age.

Discretionary trusts

In a discretionary trust the beneficiaries have no vested rights to any of the income or capital.
Any income or capital which the beneficiary may receive is at the sole discretion of the trustees.

Vesting trusts

Here the beneficiaries have rights to either income or capital or to both. In other words, it’s not up to the trustee to decide on what the beneficiary may, or may not, receive. If the trust deed states that the beneficiary must receive R10, 000 per month, then that is what the beneficiary must receive.

In our next trust article we are going to look at the third and final classification of trusts.

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Until next time.

The InsuranceFundi Team