What You Should Know About Trusts
A trust is an excellent vehicle for the protecting or holding of an asset or assets. It can be a means of ensuring an income or home, which is secured against spendthrift children or founders and even insolvency. But confusion abounds trusts and as such this leads to fights and litigation. Firstly, a trust has limited legal capacity and trustees act on behalf of the Trust, the Trust can never act on its own. A Trust is managed by Trustees, who are is appointed in terms of a Trust Deed and cannot act as a Trustee(s) until such appointment is approved by the Master of the High Court. No action taken by a trustee or purported trustee, without that trustee's appointment being confirmed by the Master, is valid.
A Trust may own or manage property on behalf of either a beneficiary or beneficiaries or the public at large. What if the trustees of a Trust wish to sell a property or properties out of the trust, may they do so? It depends upon the Trust Deed and what the Trust was originally created for. The purpose of the trust can determine if the trustees are entitled to sell property out of the Trust. The Trust Deed is either a written agreement, testamentary writing, or a court order to which a trust was created. It contains all the provision and necessary to manage the day to day running of the trust as well as the purpose of the Trust. The trustees may only act within the scope of the powers afforded them by the relevant Trust Deed, so it is important to always read a Trust Deed before proceeding with any transaction where a Trust is involved. Further, any resolution taken by the Trustees must be dated prior to the action they wish to take. The trustees cannot approve or rectify a decision after the fact, as the Trust has only quasi-judicial capacity. An example of the aforementioned is the signing of an offer to purchase or a mandate without the necessary authorisation. This would mean that the sale or purchase would be void ab initio. It can further not be rectified by a further resolution of the trustees.
Finally if a Trust is selling or buying a property it is imperative to check the following:
1. The Letters of Authority confirming the appointment of the Trustees must be issued by the Master of the High Court. If the Master has not authorised a trustee or trustees to act, then they have no authority. Their actions will be considered invalid and said Trustee can be sued in his or her personal capacity for damages.
2. The Estate Agent has an absolute duty to FICA the Trust, Trustees, and the Founder (if still alive). The FIC Act requires that not only must the Trust in its capacity be FICA'd but also the Trustees, Founder, and Beneficiaries. This is not only to establish beneficial ownership but also to ensure that you are dealing with the correct parties.
3. Authority to Act in terms of the Trust deed: The trust is only bound by the actions of the Trustees if said trustees comply with the Trust Deed:
- Do you have a quorum? Are enough Trustees appointed in terms of the Trust Deed? If not, then even if there is a resolution, then any decision by the Trustees will be invalid;
- Do all the Trustees have the necessary capacity to contract on behalf of the trust?
- Do the Trustees have to act jointly or not? Unless provided for in the alternative trustees must always act jointly. The Trust Deed must make provisions if the trustees can act individually or as a group; and,
- Is there authority for the action? There should always be a resolution by the Trustees when acting on behalf of the trust. A Trustee may never act unilaterally even if he or she is the only trustee.
In the end, it is important to ensure that when dealing with a trustee of a Trust that there is a resolution authorising him or her and that he or she is appointed by the Trust Deed and confirmed by the Master.
Contact either Robert at robert@esilaw.co.za or Mariska at mariska@esilaw.co.za for all your trust needs and queries.
References:
- Section 6(1) of the Trust Property Control Act, Act 57 of 1988, as amended.
- Smith v Absa Bank Limited [2015] ZAGPPHC 486 (unreported)
- Jansen NO and Others v Ringwood Investments 87 CC [2013] ZAGPPHC (unreported)
- Section 21 of the Financial Intelligence Centre Act, Act 38 of 2001, as amended.