Parties to a Trusts

The founder

The founder is the person (or entity) who conveys property in trust to the trustee with the clear and serious intention of creating a trust. In the case of a testamentary trust the founder is the person capable of being a testator who creates the trust unilaterally in his will (Oosthuizen 602; Cameron 118 et seq).
In the case of an inter vivos trust (created by means of a contract) the founder is the person who enters into an agreement with the trustee for the benefit of the beneficiaries. “Founder” in this context can include one or more natural or juristic persons who are competent to enter into an agreement and can include, for example, a trustee who, on behalf of say trust A, where the trust deed empowers him to do so, creates a new trust B (see the formation of trusts in B7–B13 infra).
It is possible to have more than one founder in a trust, for example where A and B agree to act jointly with the intention of creating a trust (Goodricke & Son (Pty) Ltd v Registrar of Deeds, Natal 1974 1 SA 404 (N) and B4.2.2 supra). The founder must be divested or be bound to be divested of at least a part of the legal proprietary right and power over the trust property (Cameron 6). In terms hereof a trust cannot in South Africa merely unilaterally be created by the founder but the deed of trust must contain a stipulation confirming the said divesting requirement.

As was discussed in B5.1 above, it is advisable from a practical point of view that the founder refrains from being the sole trustee when the trust is formed. The founder may create a trust with himself and another as trustees. The founder can also be a beneficiary (see B6.3 infra). A person married in community of property can act as the founder by concluding an agreement with the other spouse and him/herself as trustees (Vaal Reefs Exploration & Mining v Burger 1999 4 SA 1161 (SCA)).
A unilateral declaration of trust is not possible in terms of the South African trust law. The general principle was stated in Crookes v Watson 1956 1 SA 277 (A) 298 where Van den Heever JA said: “I can think of no principle of our law according to which the individual can during his lifetime unilaterally sequester a portion of his estate and dedicate it to certain ends.” Cameron at 144 states that this view is “clearly right” (see also Cameron 6, 63–64, 78, 81, 143–146 and 216).
Whether age or relationship should play a role in determining who the founder of the family discretionary trust should be is discussed in the paragraphs dealing with the various taxes and duties (B21.5.6, B23.1, B24.3; the age for majority is now 18 years as from 1 July 2007 (s 17 of the Children’s Act 38 of 2005 came into operation by Government Gazette 30030 of 29 June 2007)). Once a trust is created, the founder has no further jurisdiction over it, apart from powers specifically reserved in the trust deed and apart from the founder’s special legal standing in relation to the trust (Cameron 322 and 503 et seq) as discussed in more detail in paragraphs B18.2.1 and B18.2.2 dealing with the variation and revocation of the trust deed.

The Trustees

The word “trustee” has, apart from its use in some statutes, as, for example, in insolvency and income tax, no precise connotation in our law and it implies a fiduciary relationship between legal subjects, ie the trustees and the beneficiaries. The Trust Property Control Act defines “trustee” as “any person (including the founder of a trust) who acts as trustee by virtue of an authorisation under section 6 and includes any person whose appointment as trustee is already of force and effect at the commencement of this Act” (s 1; see also Oosthuizen 611). This definition of a trustee creates a possible anomaly in the case of an inter vivos trust when read with the definition of a trust in section 1 of the Trust Property Control Act in terms whereof a trust is “the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed – (a) to another person the trustee . . . or (b) to the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee”. In the case of an inter vivos trust, the act to create a trust between the founder and the trustees, be it by means of a donation or any other form of obligation, is usually done prior to the authorisation under section 6 of the Trust Property Control Act, (see par B5.1 supra) which, according to certain case law, does not provide for retroactive ratification by anybody or any authority. This may need the urgent attention of the legislator especially in view of the development in the case law pertaining to acts by trustees prior to authorisation in terms of section 6(1) (see B6.2.3 infra and Smith BS and Van der Westhuizen WM “The need for legislative reform regarding the authorisation of trustees in the South African law of trusts” Journal for Juridical Science 32(1) 163–186 and Smith BS “The ‘Dual Purpose’ of section 6(1) of the Trust Property Control Act; A possible solution to the problems caused by the authorisation requirement” Stellenbosch Law Review 2007 1 53–74) but also Nqhome T “Validity of inter vivos trusts” GhostDigest 26 May 2009 who takes a different view.
The trustee can be any person who has the capacity to act as trustee. In this sense, a minor can be a trustee as long as he is assisted by his guardian to do so; however, it appears as if the Master of the High Court refrains from issuing letters of authority to minors (B6.2.2 infra). The “age of majority” is now 18 years as from 1 July 2007 (s 17 of the Children’s Act 38 of 2005 came into operation by Government Gazette 30030 of 29 June 2007).
The trustee must accept the appointment and if the trust is created by means of a donation, the trustee has to accept the donation as a party to the agreement with the founder (donor) (Cameron 216 et seq).
Section 8 of the Trust Property Control Act provides for foreign trustees. When a person who was appointed outside the Republic as trustee has to administer or dispose of trust property in the Republic the provisions of the Trust Property Control Act shall apply to such trustee in respect of such trust property and the Master may authorise such trustee under section 6 to act as trustee in respect of that property. In contrast to section 6, the provision is permissive (“may”), and the statute does not render the Master’s authorisation a prerequisite to the foreign trustees’ authority to act. According to Cameron (at 224) it would seem that the provision was inserted for the convenience of foreign trustees who may find it expedient to be armed with written authority when seeking to deal with trust assets. The Master of the High Court, however, requires foreign trustees to either render security in terms of section 6, or to have a domicilium citandi et exucutandi address in South Africa.

Capacities and qualifications
The person who acts as trustee, acts in two capacities at all times. In his capacity as trustee he holds an office and within the ambit of his trusteeship all his actions are related to that office. At the same time he is a private individual with all his attributes, rights, obligations and property which are unrelated to the trust which he administers. His official actions as trustee relate to the trust in which the fiduciary relationship attaching to trusteeship reigns supreme and are completely divorced from his private circumstances. Despite the different views held by South African jurists, there seems to be little doubt that if the only missing link in the created trust chain is a trustee (because of an oversight) the courts will not hesitate to appoint one in order to give effect to the testator’s intention to create a trust. Therefore, a trust will not fail because of the absence of a trustee (Olivier 24; Cameron 213 and Oosthuizen 614).

There are no prescribed qualifications for trustees except for the following which can perhaps be regarded as disqualifications:

(a) any person who attests and signs a will as a witness, or who signs the will in the presence and by the direction of the testator, or who writes out the will or any part thereof in his own handwriting, and the person who is the spouse of such person at the time of the execution of the will, shall be disqualified from receiving any benefit under that will. For these purposes the nomination in a will of a person as trustee shall be regarded as a benefit to be received by such person from that will. There are, however, important exceptions to this rule as contained in section 4A(2) of the Wills Act 7 of 1953 (see also A11 above and Cameron 213);
(b) the director of a company who has been appointed trustee for the holders of debentures in that company (s 122 of the Companies Act 61 of 1973);
(c) the Master in his official capacity (s 99 of Act 66 of 1965 and Cameron 213);
(d) if any of the grounds for removal of a trustee referred to in section 20 of the Trust Property Control Act is present he may also be disqualified on those grounds to be appointed;
(e) if the trust instrument specifically disqualifies a person to act as trustee;
(f ) a person of unsound mind (Cameron 213).

In Land and Agricultural Bank of South Africa v Parker 2005 2 SA 77 (SCA) 90C–D Cameron JA described the ideal trustee as “someone who, with proper realisation of the responsibilities of trusteeship, accepts office in order to ensure the trust functions properly, that the provisions of the trust deed are observed, and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked”. The trustees are also obliged to maintain functional separation of ownership/control from enjoyment (Parker case at 88G–I). It is not clear why the Court singles out the trust figure in this respect, and why our Courts have not also made this applicable to the company where the sole shareholder is the only director, or to the close corporation with only one member. One answer may be, that the Turquand rule does apply to the corporate entities to protect outsiders which can, if clearly applicable to trusts, also be a more effective solution than the third independent outsider trustee to protect third parties in the case of a trust (B4.2 supra and Du Toit


1  After 31 March 1989
To be appointed, a trustee must be a contractually capable person, legally appointed as trustee and must accept the appointment (see paragraph B12 for formalities). Depending on the stipulations of the trust deed or will, the appointment can be done by the founder, other existing trustees, beneficiaries, court order, statute or the Master of the High Court (Olivier 52; Cameron 182 et seq; Oosthuizen 614 et seq). The number of trustees can vary from one to a maximum of 20 (Companies Act 61 of 1973 s 30; Theron 1990 SALJ 679 and Theron 1991 TSAR 283. See also the authorities referred to therein. Cf also Cameron 93 where they maintain that there may be no limitation on the number of trustees and Olivier 123, the latter being of the opinion that the limitation of 20 refers to the beneficiaries). The new Companies Act 71 of 2008 which was published on 9 April 2009, but which will come into operation only apparently during the middle of 2010 does not have any equivalent to section 30 of the 1973 Act and therefore does not contain any limitation as to the number of members or partners. The view taken by Cameron JA in Land and Agricultural Bank of South Africa v Parker 2005 2 SA 77 (SCA) 90B–D pertaining to an “independent outsider” as a trustee in family business trusts is important to note. This, according to Cameron JA, is to ensure that adequate separation of control from enjoyment is maintained in every trust. The independent outsider (90C–D of the judgment):
“does not have to be a professional person, such as an attorney or accountant, but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly, that the provisions of the trust deed are observed, and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked. Such an outsider will not accept office without being aware that failure to observe these duties may risk action for breach of trust”.
Cameron JA (90A–B) took the view that the:
“debasement of the trust form evidenced in this and other cases, and the consequent breaches of trust this entails, suggests that the Master should, in carrying out his statutory functions, ensure that an adequate separation of control from enjoyment is maintained in every trust. This can be achieved by insisting on the appointment of an independent outsider as trustee to every trust in which (a) the trustees are all beneficiaries and (b) the beneficiaries are all related to one another”.
In practical terms this means that where all the beneficiaries are related and some or all of them are also the only trustees the Master has to insist on the appointment of the “independent outsider”, who then could be a person related to the other trustees, provided such person is not a beneficiary to the trust. The term “related” is not defined for these purposes and should therefore take its ordinary meaning which means persons related by blood or marriage which will most probably still exclude persons living together but may include for example a step child who is related via a parent (who is married to one of the beneficiaries) to the other beneficiaries. In existing trusts the Master could use his discretion in terms of section 7(2) of the Act as discussed hereunder or in new trusts the Master could refuse to grant exemption from security and the issuing of letters of authority in terms of section 6 of the Act unless the requirement of the “independent outsider” has been met. Only time will tell whether these measures will prove to be effective in protecting outsiders contracting with family business trusts. Some examples from the case law, ie the said Badenhorst case (see B5.2 and B5.3) and Jordaan v Jordaan 2001 3 SA 288 (C) (see B15.1.6), are confirmation that an independent outsider trustee may not be enough protection against an individual trustee as part of a larger board of trustees who ignores the other trustees and treated the trust assets as if it were his own, thus also ignoring the stipulations of the trust deed. The solution perhaps lies with proper regulation by way of legislation and a more centralised registration system, as in the case of corporations, to be able to apply the Turquand rule more effectively. The question can rightly be posed why our courts have not found it necessary to impose similar measures for the functional separation of ownership/control and enjoyment in the case of a family company where the sole shareholder is also the only director or in the case of a close corporation with only one member owning and controlling it.
The act of “appointment” has to be distinguished from the act of “nomination”. Where in a trust deed the right was reserved to the founder to nominate (but not to appoint) further trustees, it was held to mean that the founder was only entitled to nominate a trustee (Erwee v Erwee [2006] 1 All SA 626 (O)). Where the trust deed provides for a minimum number of trustees to be in office at all times, and the number of trustees drops below such minimum, the remaining trustees do not have the power to do anything other than appoint a substitute trustee (Land and Agricultural Bank of South Africa v Parker 2005 2 SA 77 (SCA)).
If the office of trustee cannot be filled or becomes vacant, the Master of the High Court shall, in terms of section 7(1) of the Trust Property Control Act, in the absence of any provision in the trust instrument, after consultation with so many interested parties as he may deem necessary, appoint any person as trustee. When the Master considers it desirable, he may, in terms of section 7(2) of the Act, notwithstanding the provisions of the trust instrument, appoint, as co-trustee of any serving trustee, any person he deems fit. In Deedat v The Master 1998 1 SA 544 (N), it was held that it was not ordinarily necessary for the Master to invite representations from interested parties before acting in terms of section 6(1) of the Act. However, where circumstances exist which place doubt on whether an appointment as trustee is still of force and effect, the Master should allow representations on that point (at 548H–I, 549C–E and 549F–G).
After having been appointed, a trustee has to be officially authorised by the Master of the High Court, which authorisation takes place in the form of a letter of authority issued by the Master after the Master is satisfied that the stipulations of the Trust Property Control Act have been complied with. It was held that any agreement concluded by a trustee in his capacity as such, prior to being authorised thereto by the Master in terms of section 6(1) of the Trust Property Control Act, is invalid. In this regard, Goldblatt J held in Simplex (Pty) Ltd v Van Der Merwe 1996 1 SA 111 (W) as follows at 112:
“I am further of the view that s 6(1) is not purely for the benefit of the beneficiaries of the trust but in the public interest to provide proper written proof to outsiders of incumbency of the office of trustee. (Honoré’s South African Law of Trust 4th ed at 179.) The whole scheme of the Act is to provide a manner in which a Master can supervise trustees in the proper administration of trusts properly and s 6(1) is essential for such purpose. By placing a bar on trustees from acting as such until authorised by the Master, the Act endeavours to ensure that trustees can only act as such if they comply with the Act. This ensures that the trust deed is lodged with the Master and that security, if necessary, is lodged with him before trustees start binding the trust’s property”.
The said judgment was approved and followed in Van der Merwe v Van der Merwe 2000 2 SA 519 (C) and applied in part and distinguished in part in Kriel v Terblanche 2002 6 SA 132 (NC) but not in Kropman v Nysschen 1999 2 SA 567 (T). (See also De Waal MJ “Authorisation of trustees in terms of the Trust Property Control Act” THRHR 2000 (63) 472 where he discusses these and other judgments; and see Watt v Sea Plant Products 1999 4 SA 443 (C) and Cameron 220 et seq as well as Thorpe v Trittenwein 2007 2 SA 172 (SCA).) Prior to this point becoming a further bone of contention, this seems also to require the urgent attention of the Legislature, as was the case many years ago in respect of preformation contracts in the company law (s 35 of the Companies Act 61 of 1973, and its forerunner, Act 46 of 1926, the latter of which also did not provide for ratification or adoption of the contract by the company with retroactive effect). Some cross-pollination of this kind from the company law to the trust law may do more good than harm (see Pretorius et al Hahlo’s South African Company Law through the Cases 5ed 156 et seq, Cameron 79 et seq and Smith BS and Van der Westhuizen WM “The need for legislative reform regarding the authorisation of trustees in the South African law of trusts” Journal for Juridical Science 32(1) 163–186 and Smith BS “The ‘Dual Purpose’ of section 6(1) of the Trust Property Control Act; A possible solution to the problems caused by the authorisation requirement” Stellenbosch Law Review 2007 1 53–74).
The anomaly which may be created by the definition of “trustee” in section 1 of the Act (see par B6.2.1 supra) can cause most, if not all, inter vivos trusts in South Africa to be invalid, a result the legislature would never have intended, unless some form of retroactive authorisation by the Master of the first founding act between the founder and the trustees is strongly implied in the act (contra Cameron 177, also Nqhome T “Validity of inter vivos trusts” GhostDigest 26 May 2009 who takes a different view).
Differing from the cases referred to above, which deal with the lack of authorisation of new trustees of new trusts (where no person or body has previously been appointed and authorised as trustee) – in other words, the typical preformation situation, one can distinguish the further situation where, in an existing trust with existing authorised trustees, new trustees are appointed (the post-formation situation). Whereas the Companies Act clearly deals with the appointment and retrospective authority of a person to act as a director after the company has already commenced its business (s 211), the Trust Property Control Act is silent on this specific issue. This is another point which requires the attention of the legislator. (See also B4.2.3 supra where other problem areas are enumerated.)

2. Before 31 March 1989
Prior to the introduction of the Trust Property Control Act 57 of 1988 on 31 March 1989, the Trust Moneys Protection Act 34 of 1934  did not contain a stipulation requiring the trustees to seek authority from the Master of the Supreme Court (now the High Court), but the now repealed Act of 1934 did require the trustees to furnish security to the satisfaction of the Master before accepting control of any moneys (s 3(1)  of Act 34 of 1934). Failure to lodge a trust deed with the Master in terms of the 1934 Act constituted a criminal offence and failure to get exemption from security from the Master further caused trustees not to be able to act as such (see B15 2.1 infra; Kruger v Botha 1949 3 SA 1147 (O); Die Meester v President Versekeringsmaatskappy 1983 3 SA 410 (C) and Maghrajh v Essopjee 1945 2 PH A43 (N); see also Cameron 218, 257 et seq).

Termination of trusteeship
A trustee’s appointment can be terminated on the following grounds:

(a) If he resigns. In terms of section 21 of the Trust Property Control Act a trustee is entitled to resign whether or not the trust instrument provides for this. Prior to the enactment of section 21 the common law applied in terms of which the trust instrument could permit a trustee to resign, but if it did not, the permission of the court had to be obtained and this would be granted only for a good reason. Hence an attempted resignation did not relieve a trustee of liability (Alexander v Opperman 1952 1 SA 609 (O) 617; Soofie v Hajee Goolam Mahomed Trust 1985 3 SA 322 (N) 330 and Boyce NO v Bloem 1960 3 SA 855 (T) 859).
Honoré 184 maintains that the statute now contains a general power of resignation subject to conditions. He interprets section 21 to mean: “(t)he trustee must resign by notice in writing to (a) the Master and (b) the ascertained beneficiaries who have legal capacity or, in the case of beneficiaries under tutorship or curatorship to the tutors or curators concerned”. This interpretation is in line with the recommendation of the South African Law Commission in their report on the review of the law of trusts (Project 9 June 1987) that “the trustee should give notice of his resignation to the Master and the beneficiaries” (par 17.3 of their report). The same imperative wording is used in the Commission’s Bill in Annexure B of their report where they recommend the wording for the forerunner of the Trust Property Control Act to stipulate in section 20 of the Bill: “Whether or not the trust instrument provides for the trustees resignation, the trustee may resign only by notice in writing to the Master and the beneficiaries who have been ascertained”. Section 21 of the Act is worded somewhat differently and the word “only” is omitted.
It is further required from a trustee who resigns (also where he is removed) to return without delay, his written authority to the Master. Cameron (229) is of the view that the object of the statutory provision concerning resignation appears to be to allow a trustee to resign notwithstanding the provisions of the trust instrument, not to impose the formality of written notice to the Master and others on all resignations. According to Cameron, the permissive nature of the statutory language (“may resign”) indicates that the statutory mode of resignation is additional and is capable of being exercised alongside other methods permitted by the trust instrument.
However, where the trust deed or will does not provide for the resignation of a trustee, it is submitted that the trustees are then obliged to follow the stipulations of section 21 of the Act by giving notice to the Master as well as the ascertained beneficiaries. If the beneficiaries of such a trust are described as “XYZ and those persons related to them by blood and affinity” (as is the case with a large number of trusts), it may become rather difficult to determine who the ascertained beneficiaries are, who must be notified for a valid resignation.
The Act is silent on when the resignation of a trustee actually takes effect, namely whether it can be the date of resignation or the date on which the resignation is received by the Master or which other date. For the sake of legal certainty, it is submitted that the resignation can take effect (and the authority granted is terminated) only after the Master has removed the name of the trustee from the letter of authority. Had this point been observed and pursued in the Parker case supra the outcome could have been different.

(b) Where the trustee vacates the office eg (i) in case of death (the vacating is on date of death and no transmission of powers occur to heirs or executor) (ii) by a trustee appointed ex officio (iii) when the constitution under which a trustee is appointed is revoked (iv) in case of a vacation in accordance with the terms of the trust deed and (v) in case of the termination of the trust (Cameron 226). It is suggested that here (other than resignation) the specific circumstances will determine the actual date of termination of authority namely date of death, etc.
(c) At common law the court has the power to remove a trustee from office (see Stander & Others v Schwulst & Others 2008 1 SA 81 (CPD)). Section 20 of the Trust Property Control Act also empowers the court but also the Master to remove a trustee from office (Cameron 231 et seq; Olivier 56; Oosthuizen 632 et seq and Du Toit 6.12.6). Some of the grounds for the removal of a trustee by the Court were discussed and decided upon in Tijmstra v Blunt-Mackenzie 2002 1 SA 459 (T). It was held that mala fides or even misconduct are not necessary requirements for the removal of a trustee.
A trustee may be removed even if his conduct complained of was bona fide. From the heading of the case, some of the circumstances which justify the removal of a trustee by a Court in terms of section 20(1) of the Act are the following:

(i) where the trustee, without furnishing any explanation for his conduct, removes trust funds from an apparently safe investment with a financial institution and transfers them to his personal account (at 474C–E paraphrased);
(ii) where the trust deed requires that, if a decision is to be taken, especially the sale of immovable property, notice must be given to all the trustees so that they may decide thereon, and the trustee deliberately refrains from informing one of his co-trustees of the intended decision. Such conduct may very well amount to mala fides (at 468H–J, 469A–B and 474F–I, paraphrased);
(iii) where the trustee does not ascertain from the trust deed what the rights and obligations of the office of trustee entails (at 468H–J, paraphrased);
(iv) where the trustee treats the trust and its assets as his own, for example by selling the trust assets without the proper approval of the other trustees as required by the trust deed; (at 468B–C and E–H, paraphrased);
(v) where the trustee expresses no independent views about matters affecting the trust, but relies entirely upon a dominant co-trustee and approves of his (wrongful) conduct (at 472A–C, paraphrased);
(vi) where the trustee, without objection, allows grave misconduct on the part of a co-trustee in the administration of trust property, and thus exercises no control at all over the trust property (at 476D–477B, paraphrased).

(d) The founder may, in the trust deed, contractually reserve the power to remove a trustee (see Cameron 232). Caution has to be exercised when reserving such powers in that it does not constitute control over the trustees (and therefore the trust) in the hands of such founder.

The Beneficiaries

A personal trust (compared to an impersonal trust where the object is usually of a charitable nature) is formed with the main object of benefiting the beneficiaries in terms of the trust deed, which is part of the power of appointment given to the trustees (see also B8.4). A power of appointment is a right given to a beneficiary or trustee to select income and capital beneficiaries and has been termed a “right of disposal” or “power of choosing”, also referred to as a potestas eligendi, which right has to be given in specific terms as a specific or special power of appointment (Cameron 583 and B8.4.2 infra as well as Du Toit and 9.5). Therefore, a trust without a beneficiary (born or to be born or in the case of a legal persona in esse or to be formed) is a nullity (Olivier 25 and 84 as well as Olivier, Strydom & Van den Berg par 4.1). (See the essentials for a valid trust in B8 infra.) Any natural person, including a trustee on behalf of another trust or a legal person, may be a trust beneficiary (Cameron 552 et seq). The beneficiaries can either be named or can be ascertained from the definition in the trust deed from a specified group of beneficiaries, such as the children of X, children then being defined, for example, as all descendants, including adopted children and their descendants. In this context, a trust can be formed for existing beneficiaries and unborn beneficiaries or for beneficiaries such as trusts, companies, etc yet to be formed. The trustees can be left with the discretion to select, from time to time, a beneficiary or beneficiaries from a designated class of beneficiaries (Cameron 554). When the power of appointment is given to the trustees in general terms and the object is vague, such as where the trustees are left to select the beneficiaries at random and as they are pleased from an undefined or no class of beneficiaries, the trust can be invalid. Cameron (152 et seq) is of the view that the founder must limit the discretion of the trustees and introduce an objective element into the process of selection either by naming the beneficiaries between whom the choice is to be made or by defining the class of beneficiaries as those who satisfy certain objective criteria, such as “my children” or “those tenants who are willing and able to pay rent”. There is no limitation on the number of beneficiaries a trust may have but, as stated in B6.2.3, there can currently, prior to the coming into operation of the new Companies Act, be a limitation of twenty on the number of trustees (Theron 1990 SALJ 679 and 1991 TSAR 283; contra Cameron 93. The new Companies Act 71 of 2008 which was published on 9 April 2009, but which will come into operation only apparently during the middle of 2010 does not have any equivalent to section 30 of the 1973 Act and therefore does not contain any limitation as to the number of members or partners).

When, however, a power of appointment is conferred on a beneficiary, his range of choices may be unlimited (Cameron 152 et seq and 583 et seq). In such an event, it is thought that the power to select a capital beneficiary is valid only if it is clear that the interest of the beneficiary on whom the power is conferred cannot extend beyond his lifetime or if there is a substitute gift in default of appointment. These limitations rest on long-standing policies against the delegation of testamentary powers and against burdens on the ownership of property. Arguments have, however, been advanced for relaxing these limitations (Cameron 153 and 583 et seq and Estate Orpen v Estate Atkinson 1966 4 SA 589 (A)).
As was pointed out in paragraph B5 above, the legal nature of the rights of a beneficiary will depend on the terms and conditions in the trust deed. These rights can be vested or contingent (cf B24.5 infra).
The founder can be one of the beneficiaries – even a capital beneficiary. Similarly, subject to what the Master may require in terms of the Parker case as discussed supra, a trustee can also be a beneficiary – even a capital beneficiary. Therefore, a founder can be one of the trustees as well as one of the beneficiaries in a trust created by himself (see Cameron 11 and the Goodricke case supra). The tax implications of this structure will be discussed later on. At this stage it is sufficient to say that the tax implications depend largely on the degree of control held by the founder as trustee.
The validity of a trust, therefore, depends on whether the specific power of appointment (B8.4.2) is adhered to and, consequently, whether the trustee’s power to select beneficiaries is adequately outlined. If it is not, it may result in the trust lacking a proper object further resulting in the invalidity of the trust (Cameron 152).

Inter vivos real trust: beneficiaries’ rights
In terms of the principles applicable to a stipulatio alteri, the beneficiaries in the case of an inter vivos real trust (in narrow sense) acquire certain rights (see below for the nature of these rights) in the trust property, only when they accept the benefits of the stipulatio. Where there is no acceptance, there is no right (Crookes NO v Watson 1956 1 SA 277 (A) and reconfirmed in Hofer v Kevitt 1998 1 SA 382 (SCA)). These rights are, however, still subject to the terms and conditions of the trust deed. If for instance the trustees have full discretionary powers to select the capital beneficiaries or to distribute the capital and the income according to their sole discretion to the beneficiaries, the latter only obtain a ius in personam vis-à-vis the trustees which is still subject to their discretion when they accept the benefit or where they have been a party to the trust deed or any amendment thereof (see Olivier 87–106; Cameron 557 et seq but also 498 and Oosthuizen 637 et seq).
The acceptance by the beneficiary has been described in the Crookes case supra as the event which establishes the vinculum juris between the beneficiary and the founder or trustees (288A). Prior to acceptance by the beneficiaries the trustees and the founder can affect amendments to the trust deed without the consent of the beneficiaries which may even prejudice some of the beneficiaries. As discussed hereunder, this may be subject to the statutory fiduciary duty imposed on the trustees by section 9(2) of the Trust Property Control Act. Unless the beneficiary accepts the benefit conferred by the donor, no contractual nexus between the donor and beneficiary comes into existence (Hofer v Kevitt 1996 2 SA 402 (C) 405).
Van den Heever J A in Crookes’s case (303A–B) as part of the majority decision goes as far as saying: “In the light of the authorities to which I have referred, I am persuaded that our law in circumstances such as these permits of revocation by the donor during his lifetime and prior to acceptance by the beneficiaries”.
No form is prescribed for acceptance by the beneficiaries, but it is advisable for a beneficiary who is capable of understanding what he is doing to confirm, in writing, that he accepts the benefits provided for him under the trust. A mere mental attitude of approbation does not amount to acceptance. An unequivocal expression of intention to accept and communication to the trustee of the beneficiary’s acceptance are needed for acceptance to be effective (Cameron 498 et seq, and B7 as well as B18.2.2 infra).
The general rule is that a guardian cannot accept on behalf of unborn children or unborn descendants (Ex parte Orchison 1952 3 SA 66 (T)) provided the Perezian exception does not apply. This entails that, in the case of a family settlement, acceptance by the first donee is perpetual so that no further acceptance is required. However, where the trustees have the power to alienate the property and to cause it not to remain intact and in the family, the Perezian exception does not apply because the founder has not manifested an intention that the identical property should go to the expectant beneficiary (Crookes NO v Watson 1956 1 SA 277 (A) 288C–H and Cameron 501 et seq; Hofer v Kevitt 1998 1 SA 382 (SCA) 387E–I).
In the inter vivos trust, the trustees derive all their contractual duties and obligations from the agreement with the founder. (The common law also imposes some duties on the trustees.) In view of the peculiar nature of the stipulatio alteri applicable to the inter vivos trust (the trustees do not drop out of the agreement after acceptance by the beneficiaries) the agreement which the trustees have with the founder causes them to have a contractual nexus with the beneficiaries after acceptance by the latter. It can, therefore, be argued that, if the beneficiaries only obtain rights after acceptance (in the case of an inter vivos trust), the nature of their right, where ownership vests in the trustee qua trustee, is only a ius in personam vis-à-vis the trustee, based on the agreement which the latter has with the founder. This ius in personam has been described as the beneficiary’s right against the trustee to claim the income and capital due to him under the trust (Olivier 88) but the beneficiary can also expect from the trustee (in terms of the agreement between them after acceptance) to administer the trust properly. In view of the usual discretionary nature of the inter vivos trust, in terms whereof the trustees possess the power not to benefit beneficiaries equally and to distribute or withhold income and capital entirely from any beneficiary as they deem fit, the beneficiary usually cannot claim the income or capital which causes this personal right to be inchoate. It is suggested that the only vested personal right which a beneficiary in this case after acceptance can have is a right vis-à-vis the trustee that the latter will administer the trust properly. (See also Coetzee J “Die regte van trustbegunstigdes” De Rebus May 2007 at 24.)
Cameron (566) states that “[i]t might have been argued that capital beneficiaries at least have personal rights to acquire the ownership of a real right in specific property (iura in personam ad rem acquirendam), since they are entitled to the transfer of the immovable property at a future date and that such rights even though contingent are capable of registration”. This will be the case where the beneficiaries have accepted the stipulatio which acceptance can take various forms depending on who the accepting parties may be (Cameron 498–501) but still no vesting has taken place. However, where the trustees have the power to sell fixed property, the ius in personam ad rem aquierendam can only be contingent in that prior to the beneficiaries acquiring a specific fixed property, the trustees may sell that property.
Whether a beneficiary possesses a ius in personam ad rem acquirendam will also depend on the facts. In the case of a fully discretionary trust, it appears as if the beneficiaries only possess a conditional ius in personam and where there is more than one beneficiary to select from, the beneficiaries only obtain a ius in personam ad rem acquirendam if and when the trustees resolve to vest a specific property, which is part of the trust capital, in such a beneficiary (CIR v Viljoen 1995 4 SA 476 (E)).
The term “vested right” is often confusing in the sense that it can have various meanings. Cameron at 556 and 557 describes it as follows:

(a) A right is firstly said to be vested in a person when he owns it. When “vested” is used in this sense, however, it is not necessary that the right of enjoyment should accrue to the person in whom the property is vested. Property may be vested in someone purely for purposes of administration.
(b) Secondly, the word vested is used to draw a distinction between what is certain and what is conditional. It is not necessary that the right that is vested in this sense should be ownership. It can be a mere personal right in the sense that the enjoyment may be postponed but the beneficiary acquires an immediate right which does not depend on any further contingency such as the survival of the beneficiary to a given age or at the death of a given person. Such a vested right is transmissible to the successors of the beneficiary on death or insolvency and forms an asset in the beneficiary’s estate. A contingent right on the other hand does not form an asset in the beneficiary’s estate on death or insolvency. Cameron further maintains that since a vested right in this sense is not the same as ownership, there is no reason why the ownership of trust property should not be given to A (the trustee) and a vested right in the capital or income of the trust property be given simultaneously to B (the beneficiary). This approach of Cameron is very close to the view taken by Joubert CJ in Braun v Blann and Botha NNO 1984 2 SA 850 (A) at 859E/F–H where he remarked that “[t]he trustee is the owner of the trust property for purposes of administration of the trust but qua trustee he has no beneficial interest therein . . . In a private trust, ie a trust not for an impersonal purpose, the beneficial interests appertain to the trust beneficiaries, either as income beneficiaries or as capital beneficiaries”. (See also Cameron 579–580 as to the distinction between “beneficial ownership” and “beneficial interest”.)
(c) In a third but rather loose sense property is said to vest in a beneficiary, when the capital is to be distributed to him which may be later than the date on which his right to the capital vested in the second sense. In other words when the right to vest is in the second sense it is dies cedit and when it vests in the third sense it is dies venit.
6.3.2  Bewind trust: beneficiaries’ rights
In the case of a bewind trust the beneficiaries acquire ownership of the trust property (ius in rem or vested right) upon creation of the trust or at a later stage and their rights are normally only limited in so far as that their control and administration of the trust assets are transferred to the trustees. It is this limitation of the vested rights of beneficiaries which can cause a trust to become ineffective because of a possible nude prohibition (nudum praeceptum). A testator or founder who attempts to deprive his fully contractually competent (the age for majority is now 18 years as from 1 July 2007 (s 17 of the Children’s Act 38 of 2005 came into operation by Government Gazette 30030 of 29 June 2007) legatee, heir or beneficiary of the right of control, or the right to dispose of the property bequeathed or transferred to him, by placing the property in the hands of a trustee or by imposing a restriction on alienation, will not normally bind the beneficiary. Such restrictions are regarded as nude and not enforceable, and can only be binding if provision is made for a successive beneficiary if the first taker should fail to abide by the imposed restrictions (Olivier 109; Cameron 154 and 578 et seq and B18.3 infra). As was indicated earlier, the business trust is often structured as a bewind trust by causing the individual business “partners” to hold vested real rights in the trust property in specific proportions often confirmed by the issuing of “share” certificates in their names (thus assimilating the company structure). In the event of a dispute amongst the “partners”, any of them can easily ignore the trust structure if it constitutes a nude prohibition. This kind of business trust (see precedent 2 infra) does not protect the beneficiaries against creditors, therefore exposing its different beneficiaries to various risks, compared to the more protective structure of the business trust in the strict sense, referred to in precedent 3 infra (see, however, B27.4 in respect of the possible negative capital gains tax implications of this kind of trust upon the disposal of an interest in the trust).

Testamentary trust: beneficiaries’ rights
In the case of a testamentary trust in the narrow sense, where the bequest is made to the trustees to be held and administered by them, for the sake of beneficiaries, the stipulations of the testament and specifically the power of appointment given to the trustees, will determine the dies venit and, therefore, the moment of acquiring of vested rights by the beneficiaries (Braun v Blann and Botha 1984 2 SA 850 (A) 886). What has been said about a bewind trust above (B6.3.2) is also applicable to the testamentary bewind trust.
Prior to the acquiring of such vested rights, the beneficiaries, in the case of a testamentary trust, only have a personal right against the trustee from the moment the trust comes into existence (CIR v Lazarus’ Estate 1958 1 SA 311 (A) 320; SIR v Rosen 1971 1 SA 172 (A) 189; Hansen’s Estate v CIR 1956 1 SA 398 (A) and Cameron 555 et seq. See also Coetzee J “Die regte van trustbegunstigdes” De Rebus May 2007 at 24).


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