OH 53OH 53

Learning Objectives

4. Analysing the Rules Pertaining to a Trust Corporation by:• Comprehending the legal nature of a Trust• Interpreting the formation, documentation and

Membership of a Trust• Interpreting the advantages and disadvantages

of a Trust• Examining accounting and taxation

requirements of a Trust• Examining the Banking requirements of a Trust

OH 54OH 54

Criteria

4. Analyse the Rules Pertaining to a Trust• Define a Trust• Describe a Trust as a legal entity• List the requirements for a valid Trust• Describe the Trust Instrument• Describe the parties and their respective roles

in a Trust• List the two main types of Trusts• Define a Business Trust

OH 55OH 55

Criteria (Continued)

4. Analyse the Rules Pertaining to a Trust• List the advantages of a Trust• List the disadvantages of a Trust• List the accounting records to be kept by a

Trust• Describe the taxation of a Trust• Describe the liability of the Members of a Trust• Judge the contractual capacity of a Trust

OH 56OH 56

Requirements for a valid Trust

There must be an intention from the founder/donor, to create a Trust and he/she must used sufficient terms to create it, namely:

• Clearly described property• Identified/identifiable beneficiaries or a clearly described impersonal or personal objective• A Trustee who has undertaken to act as such and

who, in his assigned capacity, controls the assets or owns them

• The Trust object must be a lawful one

OH 57OH 57

Trust Instrument

The Trust Instrument contains the:

• Terms and conditions agreed to by the Donor, Trustees and Beneficiaries• Determines how the Trust will be administered• Determines who the parties to the Trust are• When and how the Trust will be terminated

OH 58OH 58

Parties in a Trust

There are three parties who play an important role in Trusts, namely:

1. The Donor

1. The Trustee

2. The Beneficiary

OH 59OH 59

Types of Trusts

There are 2 main types of Trusts namely:

• Testamentary Trust• Inter Vivos Trust

These Trusts can be sub-divided into:• Business Trusts• Charitable Trusts• Discretionary Trusts• Pour-over Trusts

OH 60OH 60

Credit Risks of Trusts

The Bank must ensure:

• That the transactions are always to the benefit of the Beneficiaries

• That the Trust Deed specifies the powers of the Trustees

• The powers of the Trustee must be verified in the Trust Deed to ensure that they have the necessary power to sign Suretyships on behalf of the Trust