Share This Article
The legalities surrounding trusts are governed by the provisions of the Trust Property Control Act, Act 57 of 1988.
One of the sometimes overlooked requirements for a legally valid trust, in South Africa, is that the founder needs to have the genuine intention to create a trust. If the founder has no true intention to create a trust, but something other than a trust, no trust will come into existence. In order to establish whether there is true intention, one has to look at the degree of control the founder has with regards to the administration and “running” of the trust. When donating / placing assets in a trust the founder effectively has to distance himself from the assets he has donated. The assets become the property of the trust and no longer that of the founder.
The Supreme Court of Appeal in Land and Agricultural Bank of SA v Parker and others 2005 (2) SA 77 (SCA) held that the independent judgment on the part of the trustees is paramount to a trust. As such there needs to be a total separation of control and/or ownership between the founder and the trust assets. The founder needs to “hand over” the trust assets to the trustees. The trustees need to have full power and discretion on the management of the trust property.
To determine independence a court will look at the trust deed. The trust deed is the founding document of a trust. If any powers in managing the trust remain that of the founder, for example; the appointment of trustees or discretion with regards to any investment or amendment of the trust deed, it can be an indication that the founder is undermining the independence of the trustees and did not have a true intention to create a trust.
Why is abovementioned important?
If the founder does not have a true intention to create a trust, the trust itself could be “struck down”. This could have various consequences for the founder of the trust. The assets would then no longer be considered to be trust assets, but the assets of the founder. One of the consequences would be income tax as the founder would be liable and not the trust.
Trusts can be very useful in estate- and financial planning if executed correctly. It is of paramount importance to seek the assistance of an attorney when setting up a trust to ensure that it is done correctly. Contact one of the experts at SchoemanLaw Inc today!
Anye Jansen van Rensburg, SchoemanLaw Inc (Cape Town)
Tel: +27 (0) 21 425 5604
Email : firstname.lastname@example.org