SARS defines a vested (or bewind) trust as a trust where the founder transfers ownership of the assets to the beneficiaries of the trust, but administration and control of the assets is given to the trustees.
In terms of this type of trust, the beneficiaries are the owners of the trust assets. The trustees only have administrative control over the trust assets, which they manage solely for the benefit of the beneficiaries. The trustees are not given any discretion in terms of the trust instrument, and the beneficiaries and their benefits are fixed and predetermined.
It is therefore important that the income and capital beneficiaries are clearly determined and described in the trust instrument. Any income and capital gains earned by the trust vest in the beneficiaries. The beneficiaries have a personal right to claim their portion of the trust benefits from the trustees at the time of a certain event, for example upon reaching the age of eighteen.
The income and capital gains are taxable in the hands of the income and capital beneficiaries. In the event of the death of the beneficiary prior to payment, the deceased beneficiary’s interests, i.e. his/her personal rights, are transmissible to his/her heirs, and these interests must be included in his/her estate for Estate Duty purposes.