Page 23 - Bespoke EPG 2017 Digital

Vesting vs. Discretionary Trusts

■■ A discretionary trust gives the trustee(s) discretionary powers as to how and
when to allocate the income or capital of the trust to the beneficiaries. The
beneficiary does not have a vested right to the income until the trustees have
exercised their discretion, and paid over the benefit to the trust beneficiary.
The trustees may also be given discretion to nominate income and / or capital
beneficiaries from a group, as long as a “class” of potential beneficiaries
has been named, as well as how and when and the ratio of any such award
is given. Because the beneficiary has no rights whatsoever, in the event
of his death (or insolvency), nothing can be held in his estate or pass to
his heirs or creditors. This is an effective structure from the point of view of
estate planning – for estate duty savings as well as protection of assets from
creditors, on the basis that the trust assets do not form part of the estate
planner’s estate.

■■ In a vested trust, the trustees are not given any discretion in the deed, and
the beneficiaries and their benefit(s) are fixed and predetermined. Any
income earned by the trust vests in the beneficiary. The beneficiaries have
a personal right to claim their portion of the trust benefits from the trustee
upon the happening of a certain event (e.g. upon reaching the age of 18).
The beneficiary has a vested right to the income and capital, which cannot be
contested by anyone else. In the event of the death of the beneficiary prior
to payment, the deceased beneficiary’s interests (i.e. his personal rights) are
transmissible to his heirs, and these must be included in his estate for estate
duty purposes.

Nature of office of trustee

■■ The trustee acts in an official capacity, which is fiduciary in nature.

■■ The trustee must honour the trust placed in him, and always act in the best
interests of the trust beneficiaries and the trust.

■■ A natural person and a corporate person may be a trustee.

■■ The trustee is not personally liable for the debts of the trust and trust assets
do not form part of the trustee’s estate in the event of his sequestration.

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