Trusts

Question 1

Trust

Answer 1

LEGAL RELATIONSHIP

Which has been created by a person

Through placing assets

Under the control of another person

During the founder’s lifetime or upon his death

For the benefit of third persons

Question 2

PARTIES TO A TRUST

Answer 2

1. Founder (forms trust alive or dead)
2. Trustee (administers trust property)
3. Beneficiary (vested and discretionary)

Question 3

TYPES OF TRUST

Answer 3

1.Inter vivo or Testamentary trust

2. Discretionary or Vesting trust
3. Local or Foreign trust

Question 4

Inter vivos Trust (while alive)

Answer 4

A trust inter vivos is a contract for the benefit of a third person, so called stipulatio alteri.

Question 5

Testamentary Trust (at death)

Answer 5

A testamentary trust is not a “contract”, but it comes into being on the death of the founder.

It is thus created by the last will and testament of a deceased.

It follows that if the trust is created by will, the formalities prescribed in the Wills Act must be followed.

Question 6

Discretionary Trust

Answer 6

Beneficiaries DO NOT have any vested rights (not entitled to)

Any income or capital they may receive is determined purely at the discretion of the trustees

Question 7

Vesting trust

Answer 7

Have vested rights to either income or capital or both

Question 8

Local trusts

Answer 8

Trusts formed in SA-subject to jurisdiction of the Master of the High court

Question 9

Foreign Trusts (International)

Answer 9

A trust formed outside SA-not subject to jurisdiction of the Master of the High court

Question 10

Common law ESSENTIALS OF A VALID TRUST

Answer 10

intention to create a trust, it should be expressed to create an obligation on trustees

Trust property must be defined with reasonable certainty

Trust object must be lawful,

Trust object must be defined with sufficient certainty

Binding obligation on trustees to administer trust assets

Beneficiaries clearly identified

For testamentary trusts, formalities for a valid will must be complied with

Question 11

Master registration-requires

Answer 11

Trustees full details

Fees

Where records of the trust kept

Banking details

Master may insist that trustees be “independent” i.e. they are not beneficiaries

Question 12

founder

Answer 12

In principle can be a natural person or a juristic entity

The founder can be a trustee BUT not the only one. One of at least 3 trustees

The founder can be a beneficiary

Question 13

BENEFICIARIES

Answer 13

Trust without beneficiaries –nullity

Inter vivos trust beneficiaries accept the benefits of contract and Subject to terms and conditions of trust deed.

can be Income beneficiaries, capital beneficiaries or a combination

Vested right –trustees obliged to pay

Discretionary right – at the discretion of trustees

Question 14

TRUSTEES

Answer 14

Appointment must be in a lawful manner

must not be disqualified to act (capacity)

Written authority from the Master to act as trustee

Person must accept appointment as trustee

Person must furnish security if required

Question 15

ESTATE DUTY: SEC 3(3)(d)

Answer 15

“property of which the deceased was immediately prior to his death competent to dispose for his own benefit or for the benefit of his estate”

Question 16

Who can lawfully appoint trustees?

Answer 16

Founder
Other trustees
Assumption/substitution
Court
Master

Question 17

Capacity to act as trustee

Answer 17

No special requirement required BUT the trust deed may specify special qualifications and disqualifications

Minor will need a guardian to carry out legal transactions.

Question 18

Disqualified as trustee

Answer 18

1. Person who writes or witnesses the will and the spouse of the witness.
2. A person who lacks contractual capacity. (Minor and mentally incapable people)
3. The Master in his official capacity

Question 19

Written authority from the Master

Answer 19

SECTION 6 states a trustee cannot perform valid acts unless authorised in writing by the Master to act as a trustee.

MUST BE WRITTEN NOT VERBAL

Question 20

Accept appointment as trustee

Answer 20

No person can be FORCED to act as a trustee against his/her will

A trustee appointment will not become effective until he has ACCEPTED the appointment.

Trustee must be made aware of appointment in order to accept it.

Question 21

Duties of trustee

Answer 21

1. obtain original instrument (TRUST DEED) and familiar with content
2. Statutory and common law duties
   2.1 breached if one merely act as puppet2.2 A trustee must act independently2.3 Decisions regarding a trust must be reached by all trustees unanimously (unless trust deed states otherwise)

Question 22

Other duties

Answer 22

Act with care, diligence and skill

Open a separate trust bank account

Keep proper records and to be accountable

Preserve documents

Administer, protect and invest trust asset

Act with good faith towards beneficiaries

Take only reasonable remuneration

Question 23

Powers of trustee

Answer 23

1. Powers derived from TRUST DEED
2. No particular power, then a well drafted trust deed must be written
3. Delegation of powers, trustee remains responsible for acts performed on his behalf

Question 24

Termination of office of trustees

Answer 24

Death of trustee

Termination of the trust

Trustee may also resign

Removed by Master or person having an interest

Removed by the Court

Question 25

Sec 20(1) (Based on actions of trustee) termination

Answer 25

Removes trust funds from a safe investment →transfer into own account

Deliberately fails to inform another trustee of decision

Treats trust and its assets as his own

No independent views – rely on dominant co-trustee

Question 26

ADVANTAGES OF A TRUST

Answer 26

Freeze personal estate which will be excluded from dutiable estate

Protect assets against creditors and administers a minor’s inheritance

Efficient succession

Trust, unlike a usufruct will not form part of an estate

There can be multiple ownership of assets

Question 27

DISADVANTAGES OF A TRUST

Answer 27

Duties of trustees are onerous: trust deed cannot exempt a trustee from personal liability they don’t do their duties

Issue of control: founder has to give up control of trust assets. The assets will form part of his estate at death unless it is a discretionary trust.