All the powers of a trustee are ‘fiduciary’, which means that they must be exercised as follows:

• in the best interests of all the beneficiaries;
• only for the benefit of the beneficiaries and not for third parties;
• not for the trustees’ benefit, unless specifically authorised; and
• not to defeat the terms of the trust, but in compliance with them and in consideration of all other relevant circumstances.

DUTIES

A trustee owes a duty of honesty, integrity, loyalty and good faith to the beneficiaries of the trust. A trustee must at all times act exclusively in the best interests of the trust and be actively involved in any decisions. Prior to accepting the position of trustee, a potential trustee must ensure that:

• there is no conflict of interest between his or her own personal circumstances and those of the beneficiaries;
• they have read and understood the trust deed;
• they understand the nature of the beneficial interests and as much about the beneficiary’s personal circumstances as will be necessary to administer the trust;
• they are satisfied there are no outstanding breaches of trust by the existing trustees; and
• they have determined the extent of the trust property and will ensure that, once appointed, it is vested in the names of the new trustees.

GENERAL DUTIES OF A TRUSTEE:

• To always act in good faith and jointly – the common law rule is that the trustees must always act jointly in a transaction with third parties and contractual powers must be exercised by all the trustees acting together.
• To observe the trust deed – trustees must inform themselves of the terms of the trust deed and comply strictly with the duties and directions set out in therein.
• To take possession of the trust property – the trustee needs to take charge of the trust property and he must, as soon as possible, acquaint himself with the nature and extent of thereof and take possession of the property so that it comes under his/her control.
• To act independently between the beneficiaries – trustees must not allow one beneficiary to suffer at the expense of another and must balance potentially competing interests for income and capital.
• To provide information – trustees are under a duty to provide clear and accurate accounts and produce any information or other documents relating to the trust when required to do so by a beneficiary.
• To act unanimously.
• To exercise reasonable care and ensure the correct distribution of assets.
• To provide an income for the beneficiaries and to preserve the value of the capital.

POWERS

The precise powers that a trustee has will be defined by the trust deed and by law. However, a trustee will normally be given the following powers:

• investment;
• dealing with land;
• delegation to agents, nominees and custodians;
• insurance;
• remuneration for professional trustees;
• advancement of capital;
• maintenance of minor beneficiaries; and
• to pay, transfer or lend funds to beneficiaries.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Trusts are well-known to facilitate effective estate planning and continuity planning strategies. That said, setting up a trust – whether an inter vivos (between the living) or a testamentary (created in a will) − should be carefully considered and not just implemented blindly.

The difference between testamentary and inter vivos trusts

1. A testamentary trust is established when a person (the founder) makes provision for establishing a trust in their will. The trust does not come into existence until the founder dies.
2. An inter vivos trust is set up between the living. In other words, property is transferred before death to the trust by its founder and managed by the trustees for the benefit of another person or persons.

The death benefits of creating an inter vivos trust exceeds the cost – both in time and money. According to The Estate Duty Act, upon death, a duty is levied against your estate known as estate duty. The nett value of any estate will be determined by deducting all liabilities from your assets of your estate, both real and deemed.

Should you create a testamentary trust, upon death the assets are in your name and will need to be transferred to the trust posthumously, meaning all assets are taken into account when assessing the duty payable.

Advantages

Taking the above into account, here are some benefits you could experience from creating a trust:

1. Reducing estate duty: Inter vivos trusts can be used to minimise estate duty. No estate duty should be payable on assets owned by the trust as a trust does not die.
2. Protection against creditors: As the trust’s assets are not owned by the beneficiaries, creditors do not have a claim on the assets. This advantage is especially important for people who could be exposed to potential liability. Companies as well as individuals are able to transfer assets into trusts.
3. Efficient succession: Since trusts never die, beneficiaries will be able to continue enjoying the assets if one beneficiary were to pass away.

 Disadvantages

Despite the advantages, there are also some disadvantages of having a trust. They include the following:

1. Costs: The costs of setting up a trust can be high. If assets are transferred into the trust, then transfer duty needs to also be paid.
2. Duties of trustees: Trustees could find themselves personally liable for losses suffered by the trust if it can be proven that they did not act with care, diligence and skill according to Section 9 of the Trust Property Control Act.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

https://www.iprotect.co.za/articals-trust-info/article-arcives/why-an-intervivos-trust-as-opposed-to-a-testamentary-trust.html

http://www.entrepreneurmag.co.za/advice/starting-a-business/start-up-advice/should-i-set-up-a-trust/

https://www.findanattorney.co.za/content_inter-vivos-trust

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The Trust Property Control Act 57 of 1988 defines a trustee as meaning “any person (including the founder of the trust) who acts as a trustee by virtue of an authorisation under Section 6.”

In the matter of Lupacchini vs Minister of Safety and Security (16/2010) [2010], ZASCA 108 (17 September 2010), the position of a trustee acting without the authorisation of the Master was considered, where that “trustee” authorised legal proceedings.

A trust that is established by a trust deed is not a legal person – it is a legal relationship of a special kind that is described by the authors of Honoré’s South African Law of Trusts as “a legal institution in which a person, the trustee, subject to public supervision, holds or administers property separately from his or her own, for the benefit of another person or persons or for the furtherance of a charitable or other purpose.”

Although the trust property vests in each trustee individually they have to act jointly unless the deed of trust provides otherwise. Their individual interests do not waive the requirement that they have to act jointly.

The consequence of the validity of an act that has taken place in conflict with a statutory prohibition has been considered in numerous cases, and depends on a proper construction of the particular legislation and the intention of the legislature.

The whole scheme of the act is to provide a manner in which the Master can supervise trustees in the proper administration of trusts, and their knowledge of Article 6(1) is essential to such purpose, and by placing a bar on trustees from acting as such until authorised by the Master, the Act endeavours to ensure that trustees can only act as such if they comply with the Act.

In the Kropman NO vs Nysschen it was held that a court has the discretion to retrospectively validate acts of a trustee that are performed without the requisite authority. This proposition was in later cases rejected persuasively.

“Locus standi in Judicio” on the other hand is something else and does not depend on the authority to act but depends on whether the litigant is regarded by the court as having a sufficiently close interest in the litigation.

Although section 6(1) suspends a trustee’s power to act in that capacity he or she could have a sufficiently well-defined and close interest in the administration of the trust to have locus standi.

The essence of the prohibitory phrase in section 6(1), “… shall act in that capacity only if authorised thereto …”, must be interpreted to mean that a trustee may not, prior to the Masters authorisation, acquire rights for, or contractually incur liabilities on behalf of, the trust and is not intended to regulate questions of locus standi in iudicio.’

Legal proceedings commenced by unauthorised trustees and commercial transactions binding the trust are invalid and void.

[1] 5^th ed (2002) by Edwin Cameron with Marius de Waal, Basil Wunsh and Peter Solomon para 1.

[2] 1999 (2) SA 567 (T) at 576F.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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