Trust

A trust is a legal arrangement that allows one person, called the trustee, to hold and
manage assets on behalf of another person or group of people, called the
beneficiaries. The person who creates the trust is known as the founder or grantor.
When creating a trust, the founder transfers ownership of certain assets, such as
money, property, or investments, to the trustee. The trustee then becomes the legal
owner of those assets, but they have a fiduciary duty to manage and use them for
the benefit of the beneficiaries according to the terms and instructions set by the
founder.
The trustee's role is to protect and preserve the trust assets, make appropriate
investment decisions, and distribute the assets or income generated by the assets to
the beneficiaries as specified in the trust document. The trust document contains the
instructions and guidelines that govern how the trust should be managed and how
the assets should be distributed.
The beneficiaries, who can be individuals, organizations, or even future generations,
are the ones who are entitled to benefit from the trust. They may receive regular
payments, lump-sum distributions, or use of the trust assets for specific purposes,
depending on the provisions outlined by the founder.
One of the key advantages of a trust is that it can provide a level of asset protection,
privacy, and control. By transferring assets into a trust, they are separate from the
founder's personal estate, which may offer protection from potential creditors or legal
disputes. Additionally, a trust can help avoid the lengthy and public process of
probate after the founder's death.
Trusts can serve various purposes, such as providing for the financial needs of
family members, managing assets for minors or individuals with special needs,
supporting charitable causes, or facilitating estate planning and tax efficiency.
In summary, a trust is a legal arrangement where the trustee manages assets on
behalf of the beneficiaries according to the founder's instructions. It ensures that the
assets are protected, managed, and distributed in a manner that aligns with the
founder's intentions and benefits the designated beneficiaries.
Here's an example of how a trust works:
Let's say Sarah wants to ensure that her children, Emily and Michael, receive
financial support for their education expenses. Sarah decides to create a trust to
accomplish this goal.
Creation of the Trust: Sarah consults with an attorney to draft a trust document.
She designates herself as the founder or grantor of the trust.
Trust Assets: Sarah transfers $500,000 from her savings account into the trust. This
money will serve as the trust's primary asset. Sarah also includes a provision in the
trust document that allows additional contributions to be made to the trust in the
future.
Trustee Appointment: Sarah appoints her brother, David, as the trustee of the trust.
David will be responsible for managing the trust assets and making distributions to
the beneficiaries.
Beneficiaries: Sarah names her children, Emily and Michael, as the beneficiaries of
the trust. She specifies in the trust document that the trust funds should be used
exclusively for their education expenses, such as tuition fees, books, and other
related costs.
Trust Management: As the trustee, David has a legal obligation to act in the best
interests of Emily and Michael. He is responsible for investing the trust funds wisely
to generate income and preserve the principal amount. David keeps track of the
children's educational expenses and makes distributions from the trust to cover
those expenses directly or by reimbursing the children or educational institutions.
Trust Duration: Sarah decides that the trust will remain in effect until both her
children complete their education or reach a certain age specified in the trust
document, such as 25 years old.
Throughout the trust's existence, David manages the trust assets diligently, ensures
the funds are used for the intended purpose of education, and keeps accurate
records of all transactions. Emily and Michael benefit from the trust by having their
education expenses covered without Sarah needing to directly manage or distribute
the funds herself.

This example illustrates how a trust can be created to provide financial support for
specific purposes, such as education. The trust structure ensures that the assets are
protected, managed, and distributed as per the founder's wishes for the benefit of the
designated beneficiaries.
 The parties to a trust
 The founder of the trust
 The trustee of the trust
 The beneficiary

The Founder/Donor/Creator/Settlor
The founder takes the initiative in the creation of the trust. He chooses how the trust
is created, that is to say, whether by will or by contract. He determines the extent and
the nature of the trust assets. The founder also determines the object of the trust and
names the trust beneficiaries or determines the mode by which the trust beneficiaries
are to be determined. He normally also nominates the trustee or trustees and
determines their powers and authority.
The role of the founder is, however, not necessarily terminated after the creation of
the trust. The founder can, for instance, also be a trustee of the trust. Legally, he may
also be the trustee, thereby retaining his control over the trust assets. The founder
must, however, consider possible detrimental tax implications if he retains his control
over the trust assets and the allocation of trust income.
The founder can stipulate in the trust document that the trust will be irrevocable or
can retain for himself or his executor the right to revoke the trust at any stage. The
founder can also retain the right to vary the trust document with the consent of the
trustee or trustees and, sometimes, the beneficiary and/or the court.
In simpler terms, the founder of a trust is the person who creates the trust and takes
the initial steps to establish it. The founder has several important roles and
responsibilities:
Creating the trust: The founder decides to create the trust and determines how it will
be formed, either through a will or a contract. They have control over the process of
establishing the trust.
Determining the trust assets: The founder chooses the assets that will be placed in
the trust. They decide which properties, investments, or other valuable items will be
held and managed by the trust.
Setting the trust's purpose and beneficiaries: The founder defines the purpose or
objective of the trust, such as providing for the education of their children or
supporting a charitable cause. They also name the beneficiaries who will benefit
from the trust or establish a method for determining the beneficiaries.
Selecting the trustee: The founder nominates the trustee or trustees who will
manage and administer the trust. The trustee is responsible for safeguarding and
distributing the trust assets according to the founder's instructions.
Defining trustee powers and authority: The founder determines the powers and
authority of the trustee. They establish the scope of the trustee's decision-making
abilities and may impose limitations or specific instructions regarding the
management of the trust.
Examples of the founder's role in a trust could be:

John creates a trust in his will to ensure that his children receive financial support for
their education. He determines the assets that will go into the trust, such as a portion
of his savings and investments. John also specifies that his trusted friend, Sarah, will
act as the trustee, responsible for managing and distributing the funds for his
children's education.

Mary establishes a trust during her lifetime to support a local animal shelter. As the
founder, she donates a property and a sum of money to the trust. Mary designates
the shelter as the beneficiary and appoints a board of trustees to oversee the trust's
operations and make decisions about the use of the trust's assets.

Remember, the founder can have ongoing involvement in the trust, serving as a
trustee themselves or retaining control over the trust assets. However, it's important
to consider potential tax implications and legal considerations when making such
decisions.
The trustee
The trustee is the person who is entrusted with the management of the
trust property as owner or administrator in accordance with the objects of
the trust. The trustee is the owner or administrator of the trust property
only for administration of the trust. In this capacity as trustee he does not
personally acquire any rights in respect of trust assets.

Generally, any person with full legal capacity can act as trustee. In
addition to a few general statutory requirements, such a person must
also comply with any specific requirements which are posed by the
trustee document itself. More than one trustee can be appointed if the
trust document provides for such appointment.
In order to be appointed as a trustee, a person who qualifies must be
legally nominated as a trustee and must accept his nomination.
Depending on the circumstances and the terms of the trust document,
the following persons may inter alia(among other things), nominate a
trustee –
 The founder
 Existing trustee
 Beneficiaries and
 The Master of the High Court.
A trust will not fail for want of a trustee. If the founder fails to nominate a
trustee or a nominated person does not accept his nomination, a court
will ensure that a trustee is appointed.

A trustee may, however, act as a trustee only if authorised thereto by the

Master of the High Court. The Master will grant authorisation only after
the trust document or a copy certified as a true copy by a notary has
been lodged at his office and the trustee has furnished security to the
satisfaction of the Master for the due and faithful performance of his
duties as trustee, unless he has been exempted from this duty.
An act concluded by a trustee prior to receipt of authorisation to act in
terms of section 6 of the Trust Property Control Act is null and void.
Duties of the trustee
The trustee must comply, inter alia, with the following general duties:
• He must observe his duties in terms of the trust document. In
particular, he must transfer the trust benefits to the trust
beneficiaries in terms of the trust document.
• He must fulfil his duties impartially and in good faith.
• In the performance of his duties and the exercise of his powers he
must act with the care, diligence and skill that can reasonably be
expected of a person who manages the affairs of another.
• He must take possession of the trust assets and keep these clearly
separate from his personal property, for example, by opening a
separate trust account at a bank for the money of the trust.
• He must preserve the trust property and keep it free from burdens
such as liens.
• He must manage those trust assets which are capable of
producing an income in such a way that a reasonable return is
obtained.
• He must maintain a proper account of trust funds and trust
business, retain documents relating to the administration of the
trust20 and render account of his administration of the trust when
the Master requests him to do so.
 A trustee whose appointment has been effected after 31 March
1989, the date of commencement of the Trust Property Control
Act, is obliged to furnish the Master with an address where notices
and processes can be delivered and must, in case of a change of
address, notify the Master of his new address within 14 days by
registered post
Powers of the trustee
Under common law the trustee does not have extensive powers to deal
with trust assets. Traditionally, the trustee preserved and protected the
trust assets and managed these, as far as possible, free from risk. The
trustee does not, therefore, automatically possess the right, inter alia, to
–
• sell trust assets.
• enter into a loan agreement and to mortgage trust assets; or
• expose trust assets to business risks by conducting a business.
These and other powers can, however, be conferred on the trustee in
the trust document. Obviously, such powers must be conferred on the
trustee where the trust will be used for business purposes. A wide
discretion may be conferred on a trustee in the trust document regarding
the nomination of beneficiaries and the extent of any benefits which they
are to receive. Such a type of trust is called a discretionary trust.
Remuneration of the trustee
The Trust Property Control Act stipulates that a trustee is entitled to
remuneration for the execution of his official duties. If the trust document
does not provide for such remuneration, the trustee is entitled to
reasonable remuneration which will be fixed by the Master of the High
Court in the event of a dispute.
Removal and resignation
The office of the trustee may be vacated in a variety of ways, for
instance:
• The office becomes automatically vacant on the death of the
trustee.
• The trust document often stipulates grounds on which a trustee
must vacate his office.
• The trustee is entitled to resign from his office by giving written
notice to the Master of the High Court and trust beneficiaries.
• The Master has wide powers to remove a trustee from his office,
inter alia, if he has been found guilty of an offence of which
dishonesty is an element, if he becomes insolvent, is declared
mentally ill or should fail to perform any statutory duties
satisfactorily.
• The court may also, on application of the Master or an interested
party, remove a trustee from his office if the court is satisfied that
such removal will be in the interests of the trust and trust
beneficiaries.
The beneficiary
A trust beneficiary is a person who is entitled to receive a benefit from
the trust in terms of the trust document. This right may be conditional.
Not all trusts have beneficiaries as some trusts are created to further an
impersonal object, for instance nature conservation or education.
Business trusts, however, usually have trust beneficiaries.
Any person, whether a natural or juristic person, and even another trust,
can be a beneficiary. A beneficiary is not required to have legal capacity.
Minors, an insolvent person and even unborn persons may be
nominated as beneficiaries. In general there are no limitations on the
number of beneficiaries which a trust could have.

The trustee may also be a beneficiary of the trust which he manages. It

is a basic principle of the law of trusts that a trustee must manage the
trust property in the interest of other persons or for an impersonal object.
He may, however, have an interest in the trust as long as this is not
exclusive. Therefore the trustee may not be the sole beneficiary of the
trust. The founder, however, may also be a beneficiary or even the only
beneficiary. These possibilities create the necessary scope for using the
trust as a business form. Trust beneficiaries are usually named by the
founder. He may name them individually or as a class. The founder may
also confer the right on his trustee to select trust beneficiaries, whether
from a designated group or not.
Rights of the trust beneficiary
The trust document determines the nature and extent of the rights of a
trust beneficiary. The right may be conditional or unconditional. It can
vest immediately or on a future date. The trustee can even have the right
to decide which beneficiaries will receive which benefits, if any.
The beneficiary acquires his right to benefit from the trust when he
accepts the benefit offered in the trust document. Before acceptance, the
founder can revoke or vary the benefit.29 The right of the beneficiary
remains, however, subject to the terms of the trust document and the
exercise of a discretion, if any, by the trustee. As soon as the beneficiary
acquires a vested right in the benefit, the right will form part of his estate
and his creditors can attach it.
If the ownership of the trust assets vests in the trustee, the trust
beneficiary usually enjoys only a personal right against the trustee in
respect of the trust benefit. This right is not a real right in respect of the
trust property. The beneficiary can, however, acquire such a real right in
terms of the trust document.

The flexibility regarding the nature and type of right which a trust
beneficiary can acquire is a valuable benefit of the trust. It is particularly
useful for tax and estate planning in respect of business trusts.
The beneficiary may forfeit his right to benefit. He can, for example,
forfeit it in a way provided for in the trust document. The trust benefit
may be subject to a condition, for instance, the obtaining by the trust
beneficiary of a particular qualification before a specified date. If the
beneficiary fails to obtain that qualification before the set date, he forfeits
his rights to the benefit.
Remedies of the trust beneficiary
The trust beneficiary has a wide range of remedies at his disposal to
protect his interests. After acceptance of the trust benefit he may enforce
his rights in terms of the trust document. If the trustee commits a breach
of trust and the beneficiary suffers actual patrimonial loss as a result, he
may recover damages with an action for breach of trust. The beneficiary
can also bring an action against a trustee or another party for unjust
enrichment in an appropriate case. Unlawful interference with the rights
of a beneficiary can be prevented by means of an interdict.
4 External relations
4.1 Contracting on behalf of a trust
As the trust is not a legal person, it cannot conclude a contract on its
own. Contracts of the trust are concluded by the trustee acting as the
representative of the trust. The trustee acquires his authorisation to
contract on behalf of the trust from the trust document. He may,
therefore, only act within the limits laid down by the document. If there
are two or more trustees, the general rule is that they should act jointly.
Acts in conflict with the requirements of the trust document, for example
if it is required that all trustees must act, and only two do so, will have
the effect that the act is void.30 If the acts of the trustees are subject to
an internal requirement, such as that two trustees can act, but they must
get permission from the third to make a loan, the question is if the
common law Turquand rule will apply.31 It is, however, doubted as,
amongst others, because one of the requirements of the Turquand rule,
being that there must be publication of the requirements in respect of
potential authority, is not complied with in the case of a trust.

Actions by or against the trust

Actions by or against the trust are normally instituted by or against the
trustee in his capacity as trustee. However, when the trust has to sue the
trustee, for instance for loss caused by maladministration, the
beneficiaries have locus standi to institute the action on behalf of the
trust. 33 If judgment is given against the trust, execution can normally
only be levied against assets of the trust.