The uniqueness of a trust from a legal perspective may pose a risk for estate planners
JOHANNESBURG - Many people misunderstand the unique nature of a trust, which paves the way in which trust assets should be dealt with. Such ignorance can cost estate planners dearly, as their actions, or lack thereof, may threaten the existence of a trust. Certain trustee actions, such as the purchase of assets or the entering into agreements, as a result of their ignorance, may also be declared null and void.
In short, a trust is either a contract (Crookes v Watson case of 1956) that is brought about by a person (the founder) when he/she is alive (an inter vivos trust) or it is a testamentary disposition (a testamentary trust) that is brought about on the death of a person. A trust can also be created in terms of a court order (court order trust), such as divorce order.
A trust is not regarded as an independent entity or juristic person that can be owned, sold, or transferred as would be the case with a company or a close corporation, in terms of the common law, nor in terms of the Trust Property Control Act. The Trust Property Control Act defines a trust as “an arrangement”, not as a person.
A trust does not have a legal personality because it is simply an accumulation of assets and liabilities, administrated and owned by the trustees (Land and Agricultural Bank of South Africa v Parker case of 2005). Because of this, a trust cannot own property. Any property held in trust is held by the trustees in their capacity as trustees. Section 12 of the Trust Property Control Act requires trust property to be held separately from the trustees’ personal estates. In terms of Section 12 Trust property shall not form part of the personal estate of a trustee, except in so far as he/she is a trust beneficiary and is entitled to such trust property.
Without legal personality, unless a statute defines it as such (such as the Income Tax Act), a trust does not have legal standing, and the trust cannot, therefore, sue or be sued. Despite its lack of legal personality, a trust has legal capacity, and the trustees may perform juristic acts, provided the trust instrument allows this.
Even though a trust is not a legal ‘person’, a trust has an existence, separate and apart from the founder, the trustees and the beneficiaries. It should therefore achieve a separation between ownership/control and enjoyment, otherwise a trust does not come into existence. As stated in the Thorpe v Trittenwein case of 2007, there must not be a blurring of the separation between ownership and enjoyment and that such separation is the very core of the idea of a trust. Even the Land and Agricultural Bank of South Africa v Parker case of 2005 emphasised the requirement of the separation of ownership (or control) from the enjoyment of assets. In the Raath v Nel case of 2012 it was held that “the separateness of the trust estate must be recognised and emphasised, however inconvenient and adverse to the respondent it may be”, even though it is not a ‘person’. It is therefore important to adhere to this requirement in the appointment of the various parties (founder/s, trustee/s and beneficiary/ies) to the trust, the drafting of the trust deed and the administration of the trust.
The appointment of a truly independent trustee can go a far way to demonstrate the intention of the estate planner to achieve the separation of ownership from control. The independent trustee should also assist other trustees, who may not be familiar with the legal, tax, accounting and other aspects relating to a trust, to achieve the estate planner’s objectives.