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Unit 5
Trusts
Objectives
At the end of this unit you should be able to:
• Define a trust
• Name and discuss the two types of trusts
• Identify the parties to a trust
• Discuss the requirements for creating a valid trust
• Discuss the capacity of a trustee
• Discuss the appointment of a trustee
• Discuss the powers and duties of a trustee
• Name the instances under which the service of a trustee terminates
• Name the remedies of a beneficiary
• Discuss the trust for an impersonal purpose
• Name the instances when a trust terminate]
Sections:
1. Introduction
2. Requirements for creating a valid trust
3. The trustee
4. Powers of a trustee
5. Duties of a trustee
6. Termination of the services of a trustee
7. The beneficiary
8. Remedies of the beneficiary
9. The trust for an impersonal purpose
10. Amending trust provisions
11. Termination of a trust
Unit 5 Page 1 of 10
Law for Land Managers 1B Trusts
Section 1 Introduction
A testator usually makes use of a trust where he wishes to benefit someone, but
for the beneficiary’s own protection, entrusts the ownership and control of the
assets, in the interests of the beneficiary, to a third party.
Thus the farm will belong to the trust after the testator’s death and control over it
will be exercised by the trustees until Y becomes 21. The income from the farm
will be applied to Y’s benefit and once she turns 21 the farm will be transferred
into her name.
The trust inter vivos does not form part of the law of succession as it is a trust
created between living persons and it is based on the law of contract.
The trust where the beneficiary is the owner is called the bewind trust and the
trust where the trustee is the owner is called the private trust. A trust is created
through a trust instrument which can be defined as a written agreement, a
testamentary writing or a court order which creates a trust.
A trust exists where the creator of the trust (founder) hands over or is bound to
handover the control of an asset, which, or the proceeds of which is to be
administered by another (the trustee) in his capacity as such for the benefit of
some person (the beneficiary) other than the trustee or for some impersonal
object.
The trustee holds a public office and as such is subject to public control by the
Master of the High Court.
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Law for Land Managers 1B Trusts
The founder must have the intention of creating a trust and he must
have the capacity to act and make a will if the trust is embodied in a
will.
A founder may stipulate that the trust property not form part of beneficiary’s
insolvent estate but pass to the beneficiary personally.
A trust mortis causa only takes effect upon the death of the testator (founder).
There are 3 parties to a trust namely: the founder, the trustee and the beneficiary.
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Law for Land Managers 1B Trusts
3.1 Capacity
This is the person who administers and controls the trust property for the benefit
of the trust beneficiaries or for an impersonal purpose.
A trustee can be any person who’s authorized including the founder of the trust to
be a trustee. The founder may nominate any person to become a trustee
however such person should be authorized to be a trustee by the Master of the
High Court. Any acts by trustees who are not authorized to be trustees will be
considered null and void. Simplex (Pty) Ltd v Van der Merwe 1996 (1) SA 111
(W)
A trustee can be a natural or Juristic Person as the law requires that he or she
must have the capacity to act and be in a position to accept trusteeship. Ex
Parte Leandy 1973 (4) SA 363(N)
There is no law that stipulates how many trustees there can be, more than one
can be appointed and they will jointly be liable for the administration of the trust,
they may also delegate their powers to one another. Goolam Ally Family Trust
t/a Textile Curtaining and Trimming v Textile Curtaining and Trimming (Pty)
Ltd 1989 (4) SA 985 (C )
Normal practice dictates that the founder nominates the trustee by name
in the trust instrument; however the founder may appoint a person with the
power of nominating a trustee.
The founder may also give the trustees, he has nominated, a power of
assumption, i.e. the power to appoint a trustee, in the absence of such
power a trustee has no right to appoint another trustee.
Smith v Van der Werke 1984 (1) SA 164 (T); Marais Naude 1987 (3) SA
739 (A)
Practice also dictates that before one approaches the court for an
appointment of a trustee where there is a vacancy the beneficiaries should
be consulted. Ex Parte Leandy 1973 (4) 363 (N) 367
The founder may also give the Master of the High Court the power to
appoint trustees. The Court has the power and duty to appoint trustees to
prevent the trust from failing. Ex Parte Leandy 1973 (4) SA 363 (N) 367;
Administration, Estate Richards v Nichol 1996 (4) SA (C) 259
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Law for Land Managers 1B Trusts
1. Power of Sale
This power must expressly be or impliedly be provided for in the
trust instrument. There is no common law Rule which grants the
trustee the power to sell trust property, he/she will have to approach
the court to do so. Ex Parte Moodley 1968 (4) SA 22 (D
2. Power of advancement
This power must be conferred on the trustee either expressly or
impliedly as there is no common law Rule to this effect. Ex Parte
Hulton 1954(1) SA 460 (C); Ex Parte Thompson 1972 (1) SA 528
(NC)
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Law for Land Managers 1B Trusts
4. Duty to invest
The trustee must be directed by the trust instrument and he must
use great care in administering trust property and he must not
expose it to any business risk.
5. Duty to preserve
The trustee has a duty to conserve the trust property and free
encumbered trust property.
A trustee may not have any of his personal interests clash with
those of the beneficiaries and he may also not favour one
beneficiary over the other.
A trust is not a juristic person but a legal institution sui generis i.e. an institution or
concept that has its own set of rules and does not conform to the rules of any
other legal concept or institution.
In a private trust the assets and liabilities vest in the trustees and they sue and
can be sued on behalf of the trust in respect of the trust property. Beneficiaries,
on the other hand, cannot do so however they can sue the trustees. Blann and
Botha 1984(2) SA 850(A)
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Law for Land Managers 1B Trusts
The trustee may be a beneficiary where there is more than one trustee; a founder
may also be a trustee. The trustee may not be the only beneficiary as he cannot
hold the property on behalf of himself; a founder may also be a trustee. In the
absence of a trust beneficiary the trust property is administered like the
remainder of the founders’ estate. In Re Estate Grayson 1937 AD 96
The trust beneficiary has a personal right against the trustee, which obliges the
trustee to carry out the provisions of the instrument.
In the case of a bewind trust, ownership of the trust property vests in the
beneficiary and he/she has a real right in respect of the trust property. Here the
beneficiary has a stronger position, where the trustees neglect to comply with the
provisions of the trust instrument.
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Law for Land Managers 1B Trusts
2. Sue the trustee for failing to comply with the provisions in the trust
instrument.
3. Oblige a third party who receives trust property with the knowledge
that it is not authorized, to restore the property to the trust.
The courts take a more lenient approach to charitable trusts in the following
ways:
1. A charitable trust need not fail because its object is not clearly
stated or its beneficiaries are not easily determinable.
2 The power of assumption is conferred on the trustee to determine
the beneficiaries
3. Here the Cy prês doctrine is applied in that where the court cannot
determine the testators’ intention, it is sufficient if it is determined
as near as possible.
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Law for Land Managers 1B Trusts
However despite the court not having the common law power to vary the
provisions of a trust instrument there are grounds that the court can consider in
order to vary such provision, they are:
12.6.1. Necessity
12.6.2. The implementation of the creator’s intention
12.6.3. Variation cy-prês of charitable trusts
2. Trust assets have been destroyed without fault on the part of the
trustee.
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Law for Land Managers 1B Trusts
REVISION QUESTIONS
1. What is a trust?
2. Name the two types of trust?
3. Who are the parties to a trust?
4. What are the requirements for creating a valid trust?
5. Who can be a trustee?
6. How is a trustee appointed?
7. What are the powers and duties of a trustee?
8. When can the service of a trustee be terminated?
9. What remedies do the beneficiaries have against the trustees?
10. When does a trust terminate?
Unit 5 Page 10 of 10