The founder (settlor / donor)
The founder — also called the settlor or donor — is the person who creates the trust and puts the first assets or funding into it. In a family structure the founder usually also lends or donates the value needed to capitalise the trust or to let it buy the shares in the company that holds the asset. The founder’s defining act is to give up ownership and control of what they put in: that is what moves future growth out of their estate and beyond their personal creditors.
The catch — and the theme that runs through this whole page — is that every one of those benefits depends on the founder genuinely letting go. A founder who keeps real control of the trust risks having it treated as their alter ego, which undoes both the asset protection and the tax position.
The trustees: hold and manage for the beneficiaries
The trustees hold and manage the trust property for the beneficiaries. They do not own the property for their own benefit, and the Trust Property Control Act 57 of 1988 keeps it out of their personal estates:
Trust property shall not form part of the personal estate of the trustee except in so far as he as the trust beneficiary is entitled to the trust property.
Trustees owe strict duties, and the standard of care is set by statute and cannot be contracted away. The trustee duties page covers these in full; the core standard is in section 9:
(1) A trustee shall in the performance of his duties and the exercise of his powers act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another. (2) Any provision contained in a trust instrument shall be void in so far as it would have the effect of exempting a trustee from or indemnifying him against liability for breach of trust where he fails to show the degree of care, diligence and skill as required in subsection (1).
A trustee has no power to act for the trust until the Master of the High Court has authorised them in writing — the letters of authority. The requirement is in section 6:
Any person whose appointment as trustee in terms of a trust instrument, section 7 or a court order comes into force after the commencement of this Act, shall act in that capacity only if authorized thereto in writing by the Master.
Note — The Act says a trustee “shall act in that capacity only if authorized thereto in writing by the Master”; the writing the Master issues is the letters of authority. The Act does not itself use the words “void” — the consequence that acts done without authority are open to challenge is the judicially-established effect of s 6(1).
The beneficiaries: vested rights or a discretionary spes
The beneficiaries are the people who may benefit. Their rights come in two flavours. In a vesting trust the beneficiary already has a fixed, vested right to income, gains or capital. In a discretionary trust the beneficiary has only a hope of benefiting — a spes — until the trustees exercise their discretion in their favour. The SARS trust return guide turns on exactly this distinction:
Under a vesting trust the income or capital gain or assets of the trust are vested in the beneficiaries and the beneficiaries are said to have vested rights … Under a discretionary trust, the trustees usually have the discretion as to whether and how much of the income or capital of the trust to distribute to the beneficiaries[; the beneficiaries] merely have contingent/discretionary rights (hope or spes) …
For tax purposes the word “beneficiary” is read very widely — it catches both vested and purely discretionary (contingent) beneficiaries. The Income Tax Act defines the term in section 1(1):
“[B]eneficiary” in relation to a trust means a person who has a vested or contingent interest in all or a portion of the receipts or accruals or the assets of that trust;
Interpretation Note 67 adopts the leading commentary on the breadth of that definition — confirming that discretionary and age-contingent beneficiaries are already “beneficiaries”:
This definition thus includes both capital and income beneficiaries. It is considered that so-called ‘discretionary beneficiaries’, whose interests are dependent upon the decisions from time to time of the trustees, have contingent interests as contemplated in the definition and are therefore ‘beneficiaries’ as defined, irrespective of whether or not they have ever been in receipt of any distributions or have formally accepted benefits. … A contingent beneficiary whose rights are dependent upon reaching a specific age, will, it is submitted, also be a ‘beneficiary’ prior to that date, notwithstanding that the interest is entirely conditional upon survival to a future date;
Note — The words quoted are the commentary SARS expressly endorses (“SARS is in agreement with the authors’ comments”). Whether a particular person is a beneficiary “must always be a question of fact to be determined by examination of the trust deed”.
A practical consequence: the trustees may decide each year who receives what, but a discretionary beneficiary cannot demand a distribution and does not own any trust asset. The age of majority for an adult beneficiary is 18 (Children’s Act 38 of 2005, s 17) — relevant because the attribution rules bite hardest while a beneficiary child is still a minor. See the full beneficiaries page.
Why everyone is "connected" — and why that matters
The reason these three roles cannot be understood in isolation is that, in a family trust, the founder, the trust, its beneficiaries and any company beneath it are almost always connected persons to one another. That single label switches on most of the anti-avoidance rules — section 7C, the section 7 attribution rules, the paragraph 38 market-value rule and donations tax. The defined chain reads:
“connected person” means— (a) in relation to a natural person— (i) any relative; and (ii) any trust … of which such natural person or such relative is a beneficiary; (b) in relation to a trust …— (i) any beneficiary of such trust; and (ii) any connected person in relation to such beneficiary; (bA) in relation to a connected person in relation to a trust …, any other person who is a connected person in relation to such trust; (d) in relation to a company— … (iv) any person … that … holds, directly or indirectly, at least 20 per cent of— (aa) the equity shares in the company; or (bb) the voting rights in the company; …
Two of those rules are worth seeing in their own words. First, a sale to a connected person at less than an arm’s-length price is treated, for capital-gains purposes, as if it happened at full market value — both for the seller’s gain and the buyer’s base cost:
Subject to subparagraph (2) and section 9HB, where a person disposed of an asset by means of a donation or for a consideration not measurable in money or to a person who is a connected person immediately prior to or immediately after that disposal in relation to that person for a consideration which does not reflect an arm’s length price— (a) the person who disposed of that asset must be treated as having disposed of that asset for an amount received or accrued equal to the market value of that asset as at the date of that disposal; and (b) the person who acquired that asset must be treated as having acquired that asset at a cost equal to that market value, which cost must be treated as an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a).
Second, the section 7 attribution rules loop income arising from a parent’s funding of the trust back to that parent while the benefiting child is still a minor:
Income shall be deemed to have been received by the parent of any minor child or stepchild, if by reason of any donation, settlement or other disposition made by that parent of that child— (a) it has been received by or has accrued to or in favour of that child or has been expended for the maintenance, education or benefit of that child; or (b) it has been accumulated for the benefit of that child.
The alter-ego risk and the independent-trustee point
The biggest single risk is collapsing all three roles into one person who then runs the trust as a personal pocket. A founder may lawfully also be a trustee and a beneficiary — but if the trustees do not function independently and the founder controls everything, a court may treat the trust as the founder’s alter ego and disregard it.
The court’s own words frame both the problem and the cure. The problem is a trust with no real split between control and benefit; the cure is an independent outsider as trustee:
Frequently asked questions
Yes — and it is common. The same person may be founder, a trustee and a beneficiary. What you must not do is make the founder the sole trustee and sole beneficiary, or let them run the trust as their own pocket. Concentrating every role in one person invites the alter-ego attack in Parker, where a court can disregard the trust. The cure is at least one genuinely independent co-trustee and real, minuted joint decisions.
It is a trustee who is not a founder, not a beneficiary, and not closely tied to the family — so they have no personal stake in the trustees’ decisions. The Master generally expects at least one on a family trust. The point flows from Parker: trustees who merely rubber-stamp the founder make the trust look like the founder’s alter ego. An active independent trustee keeps ownership and enjoyment genuinely apart.
They are a defined group in s 1(1) of the Income Tax Act 58 of 1962 — broadly, relatives, a trust of which the person or a relative is a beneficiary, the trust’s beneficiaries, and a company at least 20% held by a connected holder. In a family structure the founder, the trust, its beneficiaries and Newco are almost always connected. That label switches on the anti-avoidance machinery — section 7C, section 7, paragraph 38 and donations tax.
No. Trustees hold and manage the property for the beneficiaries; the beneficiaries do not own it. In a discretionary trust a beneficiary has only a hope (a spes) until the trustees decide in their favour; in a vesting trust the right is already fixed. Either way legal ownership sits with the trustees, and the Trust Property Control Act keeps that property out of the trustee’s personal estate.
It is a trust the founder treats as an extension of themselves — keeping real control, dictating decisions, using trust assets as their own. In Parker the SCA warned that where there is no real separation between ownership and enjoyment, a court can find the trust is the founder’s alter ego and disregard it, exposing the assets to creditors and undoing the planning. The defence is genuine trustee independence.