Trusts

In general terms it is a legal institution in which the founder gives property to one
person to administer it in a fiduciary capacity for the benefit of another person.

Definition: See s 1 of the Trust Property Control Act

What is a trust?
Summary: Trust founder gives property to a trustee. Trustee owns and control the
property for the benefit of the beneficiary. Testator can also give the property to
the beneficiary. Then the trustee only administers the property for the benefit of
the beneficiary.
Trust founder – bequeaths property in a will to a trustee (who must
Parties
administer it for the benefit of certain beneficiaries)

Trustee – administers the property

• Usually receives ownership over property (but not for his own benefit)
• When beneficiary is the owner – called a bewind (beneficiary cannot administer the trust
property)

Beneficiary – gets benefits from property (income or capital)

Protecting Protecting beneficiaries – minors, charities etc
Why do one use a trust? A few examples
Protecting assets from creditors (remove assets from estate of
Protecting founder)

Estate planning – reduce inheritance tax (estate duty) on the founder’s estate
Planning because the estate of the founder does not grow
 Oral trusts are possible We will discuss trust
TPCA Regulate written
Trust Property Control Act 57 of 1988
trusts
but are not regulated by
the Act
mortis causa – trust
created in a will
(TPCA)
• Trusts created in trust • 3 parties may be
rd • Always in writing
instrument (such as a reluctant to deal with • Always regulated by
will) oral trust TPCA
• Master of HC has • Oral trust can be
oversight reduced to writing –
then regulated by
TPCA
Types of trusts
Trust inter vivos
 Created between living persons
 Trust is created while the founder is alive
 Trust is created by a contract: categorized
as a stipulatio alteri – contract between 2
parties (founder and trustee) for the
benefit of a 3rd party (beneficiary)
 Contract law applies to formation and
revocation of trust and to acquisition of
rights by beneficiaries
 BUT TPCA applies to the administration
thereof.
Trust mortis causa
 Trust created by testator in his or her will.
 Trust mortis causa only takes effect after
the death of the testator.
 mortis causa – literal meaning – death is
the cause – someone do something
because of an awareness that death is
approaching.
 Administration is regulated by TPCA
Other descriptions of trusts
 Ownership trust vs bewind trust
 Who is owner? Trustee or beneficiary?
 Determines rights of beneficiary (personal right vs real right)
 Discretionary vs non-discretionary
 Are beneficiaries fixed or does trustee have discretion to choose beneficiaries form a specified group of people?
 This has an influence on vesting of rights of beneficiaries; if trustee has a discretion the beneficiaries do not have
vested rights
 Family trust
 general description of a trust used to secure the interests and protect the property of a group of family members;
often created inter vivos
 Issue: should not be alter ego of the founder; trustees must be able to act independently
 Business trust:
 trust deed must give trustees explicitly the power to carry on a business
 opposite: passive trust – default position of a trust
 Beneficiaries supply capital and get share certificates
 Object is to make a profit
Trust and other legal figures
 Braunn v Blann and Botha held that a trust is a sui generis legal concept (in its
own class). It is NOT a fideicommissum as was held in earlier case law.
 Differences with fideicommissum
 Trustee not beneficially entitled to fruits and use of trust property (fiduciaries is so
entitled).
 Trustee occupies an office (fiduc. does not)
 Trust is supervised by Master and Courts because of TPCA (fc has to be enforced by
parties involved)
 When trust fails, trustee not entitled to property – fiduciary is entitled to property if
there is not a fideicommissary
 Trust does not fail if there is no trustee (fc fails if no fiduciary)
 Trust is NOT a legal person, but is sometimes treated as one in specific Acts (e.g.
it must pay tax)
Essentialia (essential requirements)for
creation of tmc
 Testator must have the intention to create a trust
 Intention must be expressed in a way that create binding obligations for
establishing a trust
 Trust document must comply with formalities for a will
 Trust property must be determined or determinable
 Trust object must be clear (who is to benefit?)
 Braun v Blann and Botha (beneficiaries designated from a class)
 Trust ad pias causas (charitable trust) treated benevolently and cy pres doctrine applied
 Trust object must be lawful (not contra bonos mores): Minister of Education v
Syfrets Trust
Core elements

 Trustee is in ficduciary position (position of trust) (must always put interests of

beneficiaries first; beneficiaries must be able to trust the trustee to act in their
interest)
 Trustee has a separate estate from the trust estate – if trustee goes insolvent the
trust property does not form part of his personal estate
 Real subrogation – if trustee sells the trust assets, the proceeds is also subject to
the trust
 Trusteeship is an office – has duties and obligations and is subject to supervision
Trustee
 Can be a natural person or juristic person
 Nominated in will and appointed by Master after providing security
 Master may also appoint additional trustee if needed
 Power of assumption – power given to trustee in the will to appoint additional trustees
 Power of subrogation – power given to trustee in the will to resign and appoint someone else in his or her place
 Trustee must be authorized by master and letters of authority issued ito s 6 of TPCA before they can
Act; must provide security before master will authorise
 Trustee is entitled to reasonable remuneration (or as provided in will) and to be indemnified for
expenses
 Trusteeship ends when trustee dies or resigns or is removed
 Trustee can be removed by the Master in specific instances (S 20(2) of the TPCA
 E.g. when trustee goes insolvent or is declared mentally ill or is convicted of a crime of dishonesty)– see sect 20(2) of
TPCA)
 Trustee can be removed by Court if the court is satisfied that the removal will be in the interest of the trust and
beneficiaries (S 20(1))
 Trust does not end when trusteeship ends – Master will appoint a new trustee (s 7 TPCA)
Duties of trustee in terms of common law and TPCA
 (1) Lodge the will with the Master, pay Master fees, give notice of address to Master
 (2) Must give security for proper performance of duties unless exempted in trust, by Master or by a Court
(eg trustee bond underwritten by an insurer)
 (3) Study trust instrument – know its powers
 (4) Get control and ownership over trust property
 (5) Administer property as directed by will and law
 (6) Act with high degree of care, skill and diligence
 (7) Open separate trust account for money
 (8) Identify trust property and keep separate from own property
 (9) Account to Master and beneficiaries
 (10) Act in good faith and avoid conflict of interest
 (11) Exercise discretionary decision-making themselves
 May delegate the execution of such decision
 (12) Act jointly if there are more than one trustee (unless will provides differently)
 (13) Must collect all debts and ensure reasonable return on income producing property
 (14) Keep trust documents for 5 years
Beneficiaries
 Natural persons or juristic persons.
 A trust can also be a beneficiary.
 The trustee may be a beneficiary, but then there must be other trustees as well.
 Founder can be a beneficiary.
 Two main types: income beneficiaries and capital beneficiaries
 Vesting of rights depend on the type of trust
 Income beneficiary: discretionary or non-discretionary trust?
 Capital beneficiary: Ownership trust or Bewind trust?
 Ownership trust can also be discretionary or non-discretionary
 Vesting only takes place once discretion has been exercised by trustee
Power of court to vary a trust
 Common law power: Court may vary or delete provisions if it is imperative to do so, or
if the provisions are contra bonos mores – Syfrets case
 Statutory power: Section 13
 IF: Trust instrument contains provisions
 Which brings about consequences
 Unforeseen by the founder
 And these consequences has certain result, namely
 It hampers the achievement of the objects of the trust
 Prejudices the interests of beneficiaries
 Is in conflict with the public interests
 THEN: A court may delete or vary such provision; substitute property for other
property; terminate trust if the court thinks such an order is just
 Hanekom v Voight case – parties agree to amend trust deed (?)
Termination of trust
 (1) Trust object is realized
 (2) Trust assets destroyed w/o fault of trustee
 (3) Trust fails (eg no trust beneficiary or object is impossible)
 (4) Acceleration of benefits to ultimate beneficiary
 (5) By court order ito s 13 of TPCA
 (6) Through sequestration of trust

Effect of termination of mortis causa trust:

benefits left over falls in residue of estate or
if not applicable then is divided amongst intestate heirs
as determined on date of termination of trust – Harris v Estate Assumed Administrator Est
Macgregor)