How is a trust defined in our legislation?

Trusts became part of South African law after the British occupied the Cape in 1806. In South Africa, a trust is not a special type of legal device because our legal system is based on Roman-Dutch law, which does not recognise the concept of a trust. South African trust law as we know it today was developed incrementally as a combination of English law, Roman-Dutch law (also known as South African common law) and South African rules, through the mechanism of contract.

The Trust Property Control Act contains a rather cumbersome definition of a trust. It defines a trust as “an arrangementthrough which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed…” but does not, however, define what is meant by the term “arrangement”. It is clear from this definition that a trust is not a person or an entity but merely an “arrangement”. This Act specifically excludes the case where the property of another is to be administered by any person as executor, tutor, or curator in terms of the provisions of the Administration of Estates Act of 1965, therefore, excluding the administration of deceased persons’ estates, the property of minors and persons under curatorship, and derelict estates.

The Companies Act of 2008 includes a “juristic person” in the definition of a “person”, and defines a “juristic person” as includinga trust, “irrespective of whether or not it was established within or outside the Republic”. A trust, for the purposes of this Act, is, therefore, a “person”. As a trust is regarded as a “person” in terms of this Act, it can own shares in a company in its own right – therefore it can be entered into a company’s share register (and listed on the company’s share certificate) as a member of that company, and it is, therefore, not necessary to enter the names of the trustees in a company’s share register. The Court, in the Blue Square Advisory Services (Pty) Ltd v Pogiso case of 2011 (when the previous Companies Act was still in force), made it clear that one or more trustees’ names had to reflect on the share register to enable the trust to exercise the voting rights attached to the status of being a shareholder in the company. Take note that the 1973 Companies Act did not define a trust as a “person.” Since a trust cannot operate as an entity distinct from its trustees, it is still best practice to name the trustees as the registered shareholder (on behalf of the trust) of the company in the company share register, and in accordance with the provisions of the trust instrument and the required – and duly approved – trustee resolutions. The listed trustees must act as the representative shareholder of the trust.
The Court held in the Melville v Busane case of 2012 that a trust cannot be defined as a company in terms of the Companies Act – although it is defined as a juristic person – since it is not a juristic person incorporated in terms of the Act. As such, the Act cannot be applied to wind up or liquidate a trust, and a trust should instead be sequestrated. Even though a trust does not have legal personality in our law, it falls within the definition of a ‘debtor’ if it was enabled to possess an estate and incur liabilities and could therefore be sequestrated (Ex parte Milton case of 1959 as quoted in the Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly case of 1984).

Section 1 of the Income Tax Act defines a trust as “any trust fund consisting of cash or other assets which are administered and controlledby a person acting in a fiduciary capacity, where such person is appointed under a deed of trust or by agreement or under the will of a deceased person.” This definition was inserted following the decision in CIR v Friedman case of 1993, in which it was held that under common law a trust is not a person. A fiduciary duty is an onerous, legal obligation (a duty of loyalty and care), of a person managing property or money belonging to another person, to act in the best interests of such a person. Here, the concept of a trust is defined in relation to the trustees and the trust’s assets. The Income Tax Act sees any trust as a “person” for tax purposes. Many types of trusts therefore exist for tax purposes – inter vivos trusts, testamentary trusts, bewind trusts, revocable and irrevocable trusts, special trusts, foreign trusts, and charitable trusts. All trusts, including written and oral or verbal trusts, must be registered with SARS due to this definition. Even though a trust is defined as a ‘person’ for tax purposes it is treated differently from corporate persons such as a company or close corporation – other persons such as a donor or funder or even beneficiaries may be taxed before the trust. The Income Tax and Capital Gains Tax rules and rates applicable to a trust will depend on the classification of a trust from a taxation point of view. For example, special trusts have more favourable tax rates compared to other trusts. 

The following acts also recognise trusts as ‘persons’:
Deeds Registries Act – Trustees can therefore register immovable trust property in a trust’s name.
Transfer Duty Act – Transfer Duty is payable by the trustees on the acquisition of property and Transfer Duty is triggered on the ‘disposal’ of a contingent or vested right in a discretionary trust which holds “residential property” as defined in this Act. Although no definition is provided for a ‘residential property trust’, it would apply to a trust owning residential property whatever the proportion such property is of the full value of the assets held by the trust – Transfer Duty is therefore based on the full value of the residential property, regardless of the interest the person acquires in the trust.
Value Added Tax Act – a trust can register as a VAT vendor
Insolvency Act – The Insolvency Act provides for the means by which trusts can be sequestrated. A sequestration order can be obtained either by following a compulsory sequestration process or a voluntary surrender.
The Courts, on the other hand, hold that a trust is, in essence, a contract. This stems from the legal principle that a trust instrument executed by a founder and the trustees of a trust for the benefit of others is akin to a contract for the benefit of a third party – also known as a stipulatio alteri (Crookes v Watson case of 1956). However, it is clear by its very nature that a trust is more than a contract. A trust acting through its trustees is ‘alive’, while a contract is ‘dead’ and cannot speak. A trust, through its trustees, may enter into contracts, while a contract cannot enter into a contract with others. A trust acts through its trustees, while contracts are merely enforced and adhered to by parties thereto. Contracts do not have the capacity to act on their own. Trusts, on the other hand, may, through their trustees, enter into litigation, while contracts will, at most, provide the basis for litigation. The fact that trusts are afforded juristic personality by certain legislation certainly sets them apart from ordinary contracts. The Courts acknowledged for the first time in the Braun v Blann & Botha case of 1984 that a trust is in fact, a unique entity. The Court in the Tusk Construction Support Services (Pty) Ltd v Independent Development Trust case of 2020 held that even though a trust does not have a legal personality it “remains ‘a legal institution sui generis’”. ‘Sui generis’ means of its own kind or class.

In the context of estate planning, a trust can be described as a legal relationship which has been created by a person (known as the founder, donor, or settlor) through placing assets under the control of another person (known as the trustee) during the founder’s lifetime (an inter vivos trust) or on the founder’s death (will trust, testamentary trust or trust mortis causa) for the benefit of third persons (the beneficiaries).