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Understanding Deeds of Trust

• By: The Core Group – CHARTERIS & BARNES

Much is being written about deeds of trust and specifically about stipulations in deeds of trust that could cause problems. This include instances where one of the trustees has too much authority in terms of the deed of trust, which can lead to that person effectively controlling the board of trustees. This article focuses on the positive – those stipulations that should be in a deed of trust in order to make life a bit easier for the trustees. When a family trust is set up initially, the estate planner is often still young and the children small. The beneficiaries of the trust, parents and children, all have the same needs, namely care and provision. It is thus easy for trustees to manage these needs. However, twenty years later this trust could hold three farms and all three sons are probably involved in the farming business with their father. The idea is that each son should “inherit” a farm. But now all the farms belong to a discretionary trust and not to the father, who can make decisions about the inheritance. All three farms belong to the board of trustees in their official capacity and they have to manage these to the benefit of the beneficiaries. This could cause tension as the sons might have their own families to care for but no guarantee that the trustees will continue to care for their families should they no longer be there to take care of their interests. A solution can be to structure the deed of trust in such a way that instead of one group of beneficiaries more groups of beneficiaries are described – in this case three groups, with the parents and each of the sons and his dependents the beneficiaries of the various groups. It can be stipulated that all groups of beneficiaries must have representation on the board of trustees at all times and that the trustees may identify specific assets of the trust that can be administered to the advantage of a specific group of beneficiaries. It may even be stipulated that, when the trustees exercise their discretion to distribute income or capital from the trust, it is always done in a specific ratio between the groups of beneficiaries. Another useful stipulation to include in a deed of trust is to assign specific authority to the remaining trustees to sign the necessary forms in order to claim from an insurance policy in case of the death of a trustee who was the insured life in terms of life insurance. Insurance policies of which the trust is the owner often serve as provision for the deceased’s dependents. If the trust authorisation letter has to be changed in order to remove the deceased as a trustee and to appoint someone else it can be a long time before the death benefit could be claimed. Another stipulation in this regard is where someone wants their pension or annuity benefits to be paid to their family trust to provide for their dependents. However, this creates a problem with section 37C of the Pension Act. In terms of this section the trustees of the pension fund have to determine who the dependents.