Can a testamentary trust be amended?

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Often the testator or testatrix directs in his or her will that his or her assets be transferred into a trust to be formed upon his or her death. A testamentary trust is then formed upon his or her death and the terms of the last will and testament form the terms of the trust.
Unlike an inter vivos trusts, which is a contract, which the contracting parties (the founder, the trustees and potentially the beneficiaries) can amend in terms of our law, the trustees cannot amend the trust instrument of a testamentary trust on their own, as one of the contracting parties – the founder - is no longer around.

Termination of a trust does not automatically terminate trusteeship

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The Trust Property Control Act does not make provision for the termination of a trust and merely refers to the concept in Section 13, which makes provision for the fact that a court can terminate a trust, and in Section 17 setting the requirement to retain trust documents for five years after the termination of a trust. The Master of the High Court did, however, issue a directive in March 2017 setting out the Master’s requirements to deregister a trust. Even though the Trust Property Control Act does not make provision for the termination of a trust, in terms of our common law, a trust can terminate by operation of law in certain circumstances. Even though some people believe that their obligations as trustees terminate upon the happening of a termination event, the office of trusteeship comes to an end only when the trustee has duly disposed of all trust property and the Master has confirmed this. Only then will the trustees really have discharged their obligations.

What to consider when a trust is involved in legal action

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A trust itself cannot sue or be sued, because it is not recognised as a legal persona, but rather a legal persona sui generis (which means of its own kind or class), in South Africa (Rosner v Lydia Swanepoel Trust case of 1998). The trustees, in their official capacity, can, however, sue or be sued. All the trustees must join in suing and all must be sued (Mariola v Kaye-Eddie case of 1995). Therefore when a trust is sued or sues, the names of all trustees, rather than the trust itself, are to be sited in pleadings. Even though the names of the trustees will be cited in any action against a trust, it is the trust that will be liable in respect of any claims and not the trustees personally; the trustees merely act in their official capacities as trustees of the trust.

Minimum and maximum number of trustees

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The Trust Property Control Act does not prescribe a minimum or a maximum number of trustees, and a trust may be properly established with only a single trustee. The founder will be required to decide how many trustees he or she wants to appoint, given his or her specific circumstances. The Master of the High Court prefers trust instruments to stipulate a minimum and maximum number of trustees.

Can you access trust assets to settle a trustee’s debt owed to you?

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A recent webinar hosted with Business Report dealt with the importance of proper administration of a trust to prevent a trust from being labelled someone’s ‘alter ego’ (an extension of oneself), whereby the trust form is disregarded when is comes to claiming money from a person, resulting in the inclusion of the trust’s assets in calculating a claim typically against a trustee. This is a common strategy in divorce cases. The question however arises - can you ever recover a loan made to a trustee from a trust instead? The answer is you can, but only in certain circumstances, and only by choosing the right line of attack.

Do the benefits of a trust justify the costs?

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People often ask this question. Trusts do cost money to set up, but using the cost of setting up a trust as an excuse to not set one up may be penny wise and pound foolish. It may cost you more by not having a trust. The cost of Income Tax, Capital Gains Tax, Estate Duty and Executor’s Fees, during your life and upon your death, can be expensive if you do not take advantage of setting up a trust timeously. It can be a costly exercise to move assets, acquired by you, into a trust at a later stage, so the perfect time to establish a trust, as part of your estate plan, is when you start building wealth, in order to avoid unnecessary costs – now or in future.

Why a trust requires its own bank account

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Often people are of the view that trusts do not require their own bank accounts. Trustees and even service providers justify why separate trust bank accounts are not maintained for trusts – from being convenient, to saving costs, to being ‘dormant’ trusts - to name a few. Little do they know that it is in fact a legal requirement for each trust to have a separate bank account. The main rationale is to prevent any mingling of trust funds with any other non-trust funds, which may place the trust at financial risk.

Trust investments can’t be too risky or too conservative

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The trustees are required to administer the trust in terms of the law and the provisions of the trust instrument and act with the highest degree of diligence and caution. Trustees are required to be more careful and prudent with the affairs of the trust than they would be with their own affairs. In carrying out their duties, trustees fulfil a fiduciary position. A fiduciary duty is an onerous, legal obligation of a person managing the affairs of another to act in the best interest of such a person. A fiduciary relationship arises from the nature of the actual relationship undertaken; i.e. in the instance of a trust the trustees should act in the best interest of the beneficiaries. When there has been a breach by a trustee of a fiduciary duty, the beneficiary may claim the trustee’s gain out of a transaction, or may hold the trustee liable for breach of trust, even if the trustee did not financially benefit. Trustees are not permitted to play an inactive role in the administration of the trust, and may be held accountable should they behave in this manner. Trustees cannot exempt themselves from their fiduciary duties as is often found in trust instruments – that is against the law.