Law for Land Managers 1B Trusts

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

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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.

E.g. “I bequeath my farm in trust to my daughter Y. My son X is nominated as

trustee. The trust must be dissolved when Y turns 21 years old. Y will be the
trust income and capital beneficiary.

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.

There are 2 types of trusts namely:

a) The trust inter vivos
b) The trust mortis causa

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.

Thus we will only be dealing with trusts mortis causa, however to do so it is

important to note that under both types of trusts we find further two types of trusts
namely the normal or private trust, which includes the trust for an impersonal
purpose, and the bewind trust.

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 can be said to be a legal relationship by which one person is to administer

property on behalf of another or in the pursuance of an impersonal object.
E.g. The executor of a deceased’s estate or a partner in a partnership

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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Section 2 Requirements for creating a

valid trust
2.1. Serious intention to create a trust

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.

2.2 The trust must be in writing

A testamentary writing or a court order even an Ante nuptial

Contract. Thus the intention to create a trust must be expressed in
a legally valid manner. If in a will all the formalities required to
make a will must have been complied with.

2.3. The trust properly must be defined or be easily determinable.

2.4. The trust object must be clear.

E.g. In the case of a private trust the beneficiaries must be

determined or capable of being determined.

2.5. The trust object must be lawful

The object or purpose of a trust may not be in conflict with the

legislation or public policy.

A founder may stipulate that the trust property not form part of beneficiary’s
insolvent estate but pass to the beneficiary personally.

E.g. “I leave my farm to A if he becomes insolvent the farm must go to B.”

See: Vicken’s Trustee v Cloete 1914 CPD 575

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.

Section 3 The trustee

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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 )

3.2 The appointment of the Trustee

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

Section 4 Powers of the trustee

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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)

3. Power to continue business

Unless expressly or impliedly conferred in the trust instrument the
trustee has no power to continue with business as there is a
general caveat against taking business risks. The Trustee will have
to approach the court for such power. Ex Parte Estate
Klosterschulte 1962(2) SA 314(T)

4. Power to exchange trust property

Trust property may only be exchanged in the following
circumstances:
a) where the power to do so is expressly stated in the trust
instrument
b) where the trustee has the power of sale and re-investment
c) where the property is in the process of deterioration

Unless these 3 circumstances exists, the trustee requires the

consent of the beneficiaries or the court’s consent in case of
minors, to exchange trust property, the exchanged property than
falls into the trust estate.

5. Power to burden trust property

If expressly or impliedly provided the trustee has the power burden

the trust property with for example a mortgage. Ex Parte
Bellingan’s Executions 1936 CPD 515

Section 5 Duties of the trustee

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1. Duty to provide security

The court has the common law power to exempt a trustee from
providing security. However unless such exception is granted the
Master of High Court will not grant his/her authority to such trustee
unless he/she provides security.

2. Duty to take possession of the trust assets

The trustee must take possession of the trust assets for the trust.
The trustee then has a duty to make an inventory of the trust
property. Before a trustee takes possession of the trust property he
must lodge with the Master of the High Court the trust instrument.

3. Duty to keep trust assets separate

It is important that the trustee keep his personal estate separate
from the trust estate.

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.

6. Duty to avoid conflict of interests

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 trustee is entitled to a reasonable remuneration where no provision is made in

the trust instrument for a trustee’s remuneration. If a dispute ensues with
regards to remuneration the Master of the High Court may fix the remuneration of
the trustee.

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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Section 6 Termination of the service

of the Trustee
A trustee’s services are terminated when the following happens:

1. At the Death of the Trustee

2 Resignation of the Trustee by giving notice to the Master of the

High Court and the beneficiaries.

3. Removal from office by the Court on application by any party with

an interest in the trust property

4. Where the trustee is declared mentally ill or incapable of managing

his own affairs.

5. Where a trustee becomes insolvent

6. Where the purpose of the trust has been achieved

Section 7 The beneficiary

The beneficiary may be a person or an impersonal purpose for which the benefit
of the trust is intended. This is a person on whose behalf the trustee must
appropriate the trust property.

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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Section 8 Remedies of the beneficiary

Where the trustee fails to comply with the provisions the beneficiary has the
following remedies, he or she can:

1. Obtain a prohibitory interdict against a trustee who wants to sell

trust property without authorization.

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.

4. Institute a claim of damages against a trustee who negligently or

deliberately mal-administered the trust property and in so doing
caused the beneficiary to suffer damages.

Section 9 The Trust for an impersonal

purpose (Also know as
the Charitable Trust)
These are trusts that are intended to be used for charitable purposes. Here the
trustee is the entitled party and acts on behalf of an impersonal objective.

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.

Section 10 Amending Trust Provisions

The court has no common law power to vary trust provisions, however certain
statutory powers have been given to the Court to vary or revoke trusts of
immovables, i.e. The Immovable Property (Removal or Modification of
Restrictions Act 94 of 1965 Section 1)

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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

Section 11 Termination of a Trust

A trust will terminate if the following exist.

1. The trust object is realized

2. Trust assets have been destroyed without fault on the part of the
trustee.

3. If it fails for some reason

4. Where the capital beneficiary’s rights are accelerated, e.g. where

the capital beneficiary renounces his rights and no other intention is
stated in the trust instrument

5. The trustee and beneficiaries agree to terminate the trust.

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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?

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