Getting Your House in Order: A Living Trust

This is the third article in our series regarding churches’ and religious organisations’ legal, corporate governance, and financial management obligations.^[1]To re-emphasise: corporate governance is the system of rules, practices, policies and procedures by which a company (or in this case, a church or religious organisation) is directed and controlled.

The aim of corporate governance is to increase the accountability of an organisation in an attempt to avoid big (ethical, legal, financial, etc.) problems or risks, and thus ensure the long-term success of the organisation. There are three (3) different types of legal entities that a church or ministry can typically choose from, namely a voluntary association (VA), a living trust, or a non-profit company (NPC). In our second article, we looked at starting up a VA. In this article, we look at a living trust, which is often a suitable legal vehicle for donor-funded ministries within a church – although not necessarily uncomplicated or inexpensive to set up. What is a Living Trust? A living trust (or an inter vivos trust) is established when the founder(s) donates money for a certain cause. A board of trustees then administers this money and cause.

These trustees are legally protected from personal liability (much in the same way as a company’s directors are), but only if they do their job properly. Unlike a VA where every member has a say, a trust is not a “democracy”.  The trustees are the only ones responsible for the running of the trust and they are not elected.  For this reason, as mentioned in the first article, trusts are not particularly suitable to churches (which are often member-driven), but are well-suited for donor-funded ministries that are more vision orientates and driven from the top by a board of trustees.  An example of this would be trusts that are set up to raise funds for a ministry to the poor. Legal Framework: Trusts are governed by the Trust Property Control Act^[2] and must have a Trust Deed that is registered with the Master of the High Court.  

It is important to note that the trustees are only allowed to act on behalf of the trust once the Master has given them letters of authority to do so. Trusts are subject to strict governance to ensure that the trustees act in accordance with the letters of authority and trust deed drawn up by the founder during his/her lifetime. These oblige them to remain focused on achieving the stated public benefit objectives of the Trust. The Act provides for the removal of trustees by the Master or the Court, in the event of a trustee’s failure to perform his/her duties.

[1] DISCLAIMER: The tips and/or pointers in this article are general in nature and are not intended to be considered as legal advice.  It remains necessary to obtain the specific legal advice to meet the needs and objectives of your particular church and/or religious organisation.[2] Act 57 of 1988. Starting up a Living Trust:

       
1. Decide who the donor(s) will be.
       
2. Decide how much he/she/they will donate – there is no minimum amount required and they can donate any amount they wish.
       
3. Decide who the trustees will be.
       
4. Draft the Trust Deed.
       
5. Register the Trust with the Master of the High Court at the Master’s office where the work of the Trust will be done. (A registration fee of R250 is payable.^[3])

What Should a Living Trust’s Trust Deed Contain? The following are the essentials that should be covered in the Trust Deed:

       
1. Information regarding the donor(s): who they are and what amount they gave;
       
2. Information regarding the trustees;
       
3. What the Trust’s objectives are;
       
4. The rules for how the Trust is to function and be governed;
       
5. Detailed rules for calling and conducting the trustee meetings; and
       
6. Dissolution of the trust: how the trust is to be closed down and what must happen with the donated assets when it is dissolved.

Governing the Trust:

       
1. Legal: The trustees are permitted to act, and the donation can only be paid into the Trust’s bank account, once the Master has issued the trustees with their letters of authority. Any changes to trustees must be reported and registered with the Master of the High Court
       
2. Financial: The Trust is required to have annual financial statements drawn up, which are then required to be approved by the trustees.
       
3. Tax: Trusts are taxed and are required to file annual tax returns with SARS.^[4]
       
4. Other: The trustees are the ones solely responsible for the administration of the trust and its operation. It is important that the trustees safely keep all correspondence and documents filed with, and received from, the Master of the High Court.

References:

‍Nicole Copley, NGO Matters: A practical legal guide to starting up, Juta (1st edition, 2017).[1] DISCLAIMER: The tips and/or pointers in this article are general in nature and are not intended to be considered as legal advice.  It remains necessary to obtain the specific legal advice to meet the needs and objectives of your particular church and/or religious organisation.[2] Act 57 of 1988.[3]https://www.justice.gov.za/legislation/notices/2017/20171103-gg41224_gon1162-Trusts.pdf[4]https://www.sars.gov.za/ClientSegments/Businesses/Trusts/Pages/Types-of-Trust.aspx[author]  [author_info]Daniela is a duly qualified Attorney of the High Court of South Africa. She obtained a BCom LLB degree from Rhodes University. Daniela first worked for Médecins sans Frontières before completing her articles of clerkship at G van Zyl Attorneys, where she stayed on after being admitted as an attorney and practised, specialising in litigation. Daniela has loved Jesus since she was young and is a member of a local church in Cape Town where she is actively involved. [/author_info] [/author]

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