File image: Phia van der Spuy. (IOL).
JOHANNESBURG - Estate owners considering registering a trust are often told that there should be a specific number of trustees appointed. It is important to understand any legislative requirements and/or repercussions, as well as your personal circumstances, when you set up a trust.

Trustees are the guardians of the trust assets and have a duty to manage these assets in the best interest of the beneficiaries, as outlined in the trust deed.

Legal principle

The Trust Property Control Act does not prescribe a minimum or maximum number of trustees. A trust may be properly established with only one trustee. The founder will therefore be required to decide how many trustees he/she wants to appoint, given his/her specific circumstances.

In the Goodricke and Son (Pty) Ltd v Registrar of Deeds case of 1974, it was held that the same person may be the founder, trustee and beneficiary.

The founder, however, is not permitted to be the only trustee of a trust, due to the fact that a trust is a contract and a person cannot contract with oneself.

This stems from the legal principle that a trust deed executed by a founder and trustees of a trust for the benefit of others (the beneficiaries) is similar to a contract for the benefit of a third party, also known as a stipulatio alteri (Crookes v Watson case of 1956). This legal principle also requires a beneficiary (the third party) to be a different person from the trustee.

It is therefore clear that there could not be only one trustee and one beneficiary, who is the same person, as the principle makes it clear that the beneficiary has to be a third party.

Therefore for this principle to be satisfied, as a minimum, there should be one trustee (which may be you, but not if you are also the founder) with at least two beneficiaries (of which you may be one), or at least two trustees (of which you may be one) with one beneficiary (which may be you).

The National Credit Act

The National Credit Act (NCA) was signed into law by the president on March 15, 2005, and governs the assessment, application and maintenance of credit granted by a credit provider to a consumer within the Republic of South Africa. In terms of the NCA, a transaction will fall within the ambit of the NCA if the following requirements are met:

The transaction comprises a “credit transaction” or a “credit facility” - a credit agreement is an agreement entered into between a credit provider and a consumer, in which the credit provider supplies goods or services or lends money to the consumer.

It includes home loans and mortgages, bank overdrafts, personal loans, credit cards, retail credit, leasing and instalment sales; “credit” is advanced to a natural person which, in terms of the NCA, includes a trust which has less than three individual trustees, unless one of the trustees is a juristic person (such as a company); there is a fee, charge or interest imposed in respect of the deferral of payment; and the transaction is concluded or has an effect within the Republic of South Africa.

So, if a credit transaction or facility is provided to a trust, and the agreement is at arm’s length (an arm’s-length transaction is a transaction in which the credit provider and consumer act independently and have no relationship to each other. The concept of an arm’s-length transaction is to ensure that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party); and the trust has less than three trustees (unless one is a juristic person); or the trust has three or more trustees, but the turnover or asset value of the trust is less than R1million, and the value of the agreement is not large (less than R250000), the third-party credit provider will be required to be registered as a credit provider with the National Credit Regulator, before concluding any credit agreements with the trust.

Therefore, if the trust may borrow money from a third party and the trust only has two trustees (of which one is not a juristic person), for the loan agreement to be valid, enforceable and of full force and effect in terms of the NCA, the third party would be required to register as a credit provider with the NCA before concluding the loan agreement. This requirement will have to be taken into account in the appointment of trustees for the trust, but it does not mean one has to appoint three trustees at all times.

Estate Duty Act

If there is only one trustee (who is also a beneficiary), he/she may be at risk to have all the trust’s assets included in his/her estate upon death.

The Estate Duty Act (Section 3(3)(d)) is relevant where the trust instrument contains a provision that empowers the deceased, immediately prior to his/her death, to appropriate or dispose of property, or revoke or vary the provisions of any donation, settlement, trust, or other disposition made by him/her, for his/her own, or his/her estate’s benefit. In such a case, the trust property will be included in the estate of the deceased as deemed property. This has to be avoided at all cost.

Practical considerations

It is practical and advisable to appoint at least two trustees to ensure there is continuity and to ensure that one person does not solely make decisions in the trust. Set this minimum in the trust deed, to avoid abuse of trust assets.

However, the appointment of too many trustees can create administrative difficulties, such as the attendance of meetings, the making of decisions, the signing of documents, and the attendance to various duties of trusteeship.

Phia van der Spuy is the founder of Trusteeze.

The views expressed here are not necessarily those of Independent Media.

-BUSINESS REPORT