Perpetual existence of trusts a core benefit
July 19th, 2019 09:32
Similar to companies and close corporations, a trust has a perpetual existence that is not attached to the life of any person. The fact that trusts can exist for generations is one of their core benefits. There are no rules that restrict the perpetuity period of a trust, although, interestingly, it has been found that most trusts are deregistered after two generations of being handed down.
A trust will end at a time, or upon an event specified in the trust instrument. This is dependent on the wishes of the founder, which should be duly reflected in the trust instrument. It is important that the founder ensures that his/her wishes are reflected accurately in the trust instrument, in preparation for a time when he/she is no longer living, and therefore unable to influence this decision.
Typically, trustees are given discretionary powers to either extend the termination date of the trust, or to terminate the trust under specific circumstances.
Typical reasons for the termination of a trust would be:
- The trust assets have been fully distributed, making it uneconomical to continue with the trust
- The monies remaining in the trust make it uneconomical to continue with the trust
- The trust has served its purpose in terms of its stated objective (for example a family trust’s objective is to benefit the stated beneficiaries)
- All the beneficiaries are deceased
- The trustees are given authority in the trust instrument to deregister the trust upon their decision, for whatever the reason
Regardless of the stipulation in the trust instrument, Section 13 of the Trust Property Control Act allows a “trustee or any person” having “sufficient interest in trust property” to apply to the Court to end the trust, where the provisions of the trust are against the public interest or jeopardise the beneficiaries’ interests or the trust’s objective.
The Master of the High Court can only deregister a trust when it has received the following documents from the trustees:
- Reasons for termination of the trust or, where applicable, the original signed resolution terminating the trust. The resolution must state:
- whether the trust was dormant or active;
- whether a bank account was opened in the name of the trust and, if so, that it has been closed;
- The original Letters of Authority;
- Bank statements reflecting a nil balance, or the final bank statements, or a letter from the bank confirming that the account has been closed. If the trust did not have a bank account, the trustees must confirm this in writing;
- Proof that the beneficiaries have received their benefits; and
- An affidavit from the trustees confirming that the trust has been divested of all assets.
Many of the older “vanilla” trust instruments stipulate that the trust will terminate upon the death of the founder, without this being the actual intention of the founder. It is often the case that the trust founder does not read and fully comprehend the trust instrument before signing it, and as such, it does not reflect his/her true wishes.
Failure to read and fully comprehend the trust instrument can have dire consequences for future generations, with the objective of creating a trust in the first place being defeated, resulting in a legacy that should have been preserved for generations, being lost.
If you are unsure about the termination date of a trust, search for the termination clause in the trust deed (if such a clause exists) and ensure that it reflects your original intentions in setting it up in the first place. For example, if you created a trust to leave a legacy, the termination clause should stipulate that the trust does not terminate upon your death.
~ Written by Phia van der Spuy ~