CHAPTER 18

Business Trusts

1
CONTENT

1. MEANING

2. PARTIES

3. FORMATION

4. TYPES

5. CONSEQUENSES

6. DUTIES & POWERS

7. RIGHTS OF BENEFECIARIES

2
MEANING

What is a trust?
A trust has the following 4 key characteristics:
• Relationship that has been created by a person
(founder/donor/settlor)
• Through placing assets under the control of another person/s
(trustee or trustees)
• Created during the founder’s lifetime (an inter vivos trust) or
on the founder’s death (testamentary trust or a will trust)
• For the benefit of 3rd person (beneficiaries)
3
MEANING
The complete law of trust is not found in a single statute and it is not
codified, however common law and decides case law (precedents)
governs trusts. But the 1 statute that applies specifically to trusts is
the Trust Property Control Act, no 57 of 1988.

Look at how this act defines a trust on page 435 4th Ed. This definition
provides for 2 types of trust (apart from inter vivos- and will trusts):

• Ownership and control of trust assets

Ordinary trust lies with the trustees

• Beneficiary has ownership of the trust

Bewind trust assets
• But the control is with the trustee
4
MEANING
The uses of a trust:
• Estate planning
• Protect assets from a beneficiary's personal creditors and
misfortunes
• Business purposes (instead of a company, close corporation
or partnership)

Great advantages:
• Flexibility and lack of statutory formality in the creation,
administration and operation of a trust

5
 PARTIES
3 main parties to any type of trust:

• Person who forms or establishes the trust

Founder • Also known as the donor or settlor

• At least 1 trustee, but there are no maximum number of

trustees required
• Responsible for the administration and control
Trustees • Must comply with the provisions of the trust deed and law
• If no trustee, the Master of the High Court will be appointed

• These are the persons who benefit in terms of the trust deed
• They derive their rights from the terms of the trust deed
Beneficiaries • Must at least be 1 beneficiary

6
 FORMATION

• Trust is a creation from Created

DOCUMENT, unlike companies or
close corporations which are
or
creations of STATUTE
• The document is called a Trust
Deed
Contract Will of a testator
(Inter vivos (testamentary
trust) trust)

7
FORMATION (continue)
How to form a valid trust?
The following are essential elements for the creation of a valid trust:
• Intention by the founder to create a trust – must be expressed by
way of creating obligations (i.e. trustees must manage and control
the assets under their care for the benefit of the beneficiaries)
• Object of the trust must be lawful
• Trust property must be defined with certainty
• Trust property must be sufficiently certain
• Must be at least 1 beneficiary
• Must be reduced to writing (trust deed)
• At least 1 trustee must be appointed

8
TYPES (continue)

DIFFERENT TYPES

Ownership &
control of trust
assets lies with Testamentary Statutory trust
the trustees Beneficiary have trust is where the (i.e. game
(bewind trust) ownership of founder is dead reserve), Court
Example: trust assets but AND order trustees
someone these are under (settle divorce
Inter vivos trust
bequeaths assets the control of the is where the action),
to their minor trustees international
founder is alive
child, but assets (business trust or trusts or
are under the family trust) “offshore” trusts
control of a
trustee

9
CONSEQUENCES
• Trustees have certain obligations, duties and powers –
Obligations is derived from the common law or trust deed,
while duties and powers is found in the provisions of the
trust deed
• Beneficiaries have certain rights – which is also found in the
trust deed

10
DUTIES & POWERS

Common law and statutory duties of a trustee:

1. Act with care, diligence and skill
2. Open a separate trust account
3. Indicate in his bookkeeping the property he holds as trustee
4. Clearly indicate that trust property is indeed trust property
5. Must make any account / investment at a financial institution identifiable as a
trust account or trust investment
6. Upon written request from the Master, account to the Master in accordance with
the Master’s requirements, for the trustee’s administration and disposal of trust
property
7. May not destroy any document which serves as proof of the investment, safe
custody, administration, alienation or distribution of trust property before the
expiry of period of 5 years from the termination of the trust, without the written
consent of the Master 11
DUTIES & POWERS (continue)

8. Administer and protect trust property and collect debts due in respect of the
trust property with reasonable diligence
9. Under a duty to conserve the trust property although in certain cases s/he may
be entitled or even under a duty to sell and reinvest the proceeds
10. Must give effect to the terms of the trust deed / instrument
11. Must act with the utmost good faith
12. Must exercise an independent discretion at all times with respect to that
matters
13. Must not expose the assets of a trust to undue risk
14. Must invest the trust property productively
15. A trust owes the utmost good faith towards all beneficiaries
16. Must account to the beneficiaries
17. Must act within the powers granted in terms of the trust deed
12
DUTIES & POWERS (continue)
18. Must take remuneration only to which s/he is entitled
19. Must transfer income and/or capital to the beneficiaries when obliged to do
so
20. Must lodge amendments to the trust deed with the Master
21. Must furnish the master with an address where notices and processes can
be delivered and must notify the Master of any change of address

A trustee derives their powers from the trust deed

13
 RIGHTS OF BENEFICIARIES
Purpose of a trust: For trustees to MANAGE and CONTROL trust
assets on behalf of a beneficiary or beneficiaries

Any right of a beneficiary can be ceded, provided that this is not

prohibited by the trust deed

14