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Acts of formation
A trust can be formed by means of an agreement, a will, court order, statute or on statutory authority (Cameron 118 and Du Toit 1.5 who refers to it also as “sources of trust”).
By agreement
The typical trust inter vivos is one created by means of an agreement (stipulatio alteri) between the founder and trustees for the benefit of beneficiaries (Crookes NO v Watson 1956 1 SA 277 (A)). The parties to the agreement are the founder and the trustees. From a practical point of view, the beneficiaries should not, during the act of formation, accept the stipulation and, in this way, be made party to the agreement. Their absence as parties to the agreement may prove to be very useful upon the variation of the trust agreement (cf B18.2 infra and Oosthuizen 601 as well as Du Toit 151; on what constitutes acceptance, see B6.3.1 supra and Cameron 498 et seq).
A unilateral declaration of trust whereby the founder merely creates a trust on his/her own is not permissible in South Africa. The general principle was stated in Crookes NO v Watson supra 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” (298B–C). A donation is also only binding if accepted by the donee (Cameron 144 et seq). During the act of creation 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).
It can be a separate agreement or it can form part of another agreement as in the case of a trust created in an antenuptial contract (Cameron 138).
The precedents that follow should be read with what is being said with regard to all the implications, particularly the legal, as well as the tax implications of the trust in the narrow or strict sense, as well as the “bewind” trust discussed elsewhere in this book.
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Precedent 1 (Parties to agreement for family trust in strict sense) |
TRUST DEED
ENTERED INTO BETWEEN
T RUST
(hereinafter referred to as FOUNDER)
C RUST
and
T RUST
and
AD VISOR
(hereinafter referred to as TRUSTEES)
ON BEHALF OF:
AS INCOME BENEFICIARIES
T RUST and/or his spouse and/or the children born of their marriage and/or any trust created in terms of clause . . . of this trust deed. (Comment: The fact that the spouse only qualifies as an income beneficiary can cause an unnecessary conflict of interests for the trustees and unless there are other reasons, the classes of persons qualifying as income and capital beneficiaries should rather be the same.)
AS CAPITAL BENEFICIARIES
T RUST and/or his children and/or any trust created in terms of clause . . . of this trust deed.
WHEREAS the founder is desirous of creating the trust herein referred to for and on behalf of the aforementioned beneficiaries subject to the terms and conditions as hereinafter set forth in more detail;
AND WHEREAS the trustees declared themselves willing to accept the donation and to hold and utilise it on behalf of the beneficiaries subject to the conditions as set forth by the founder and as it is recorded in this deed of trust:
THEREFORE, THE PARTIES AGREE AS FOLLOWS: |
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Precedent 2 (Parties to business bewind trust)
(Take note that this kind of trust renders very little if any protection against financial and other risks of a beneficiary) |
TRUST DEED
ENTERED INTO BETWEEN
A PERSON
and
B CITIZEN
(hereinafter referred to as FOUNDERS)
and
AS GROUP A TRUSTEES
A PERSON and AD VISOR
AS GROUP B TRUSTEES
B CITIZEN and A NOTHER
(hereinafter referred to as TRUSTEES)
ON BEHALF OF:
GROUP A BENEFICIARIES
A PERSON
GROUP B BENEFICIARIES
B CITIZEN
Provided that should the said beneficiaries not accept the terms of this trust deed by which limitations are to be imposed on their capacity to deal with their property, they will be substituted by respectively D PERSON as the Group A Beneficiaries and E PERSON as the Group B Beneficiaries.
WHEREAS the founders are in agreement with each other and desirous of creating the trust herein referred to for and on behalf of the aforementioned beneficiaries subject to the terms and conditions as hereinafter set forth in more detail.
AND WHEREAS the founders have each handed over to the trustees an amount of R50 000,00 (FIFTY THOUSAND RAND) which remains their property but which is to be administered by the trustees for their benefit as beneficiaries.
AND WHEREAS the trustees declared themselves willing to hold and utilise it on behalf of the beneficiaries subject to the conditions as set forth by the founders and as it is recorded in this deed of trust:
THEREFORE, THE PARTIES AGREE AS FOLLOWS: |
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Precedent 3 (Parties to business trust in strict sense) |
TRUST DEED
ENTERED INTO BETWEEN
A PERSON
and
B PERSON
(hereinafter referred to as FOUNDERS)
and
AS GROUP A TRUSTEES
A PERSON and AN ADVISOR
AS GROUP B TRUSTEES
B PERSON and AD VISOR
(hereinafter referred to as TRUSTEES)
ON BEHALF OF:
GROUP A BENEFICIARIES
A PERSON and/or his spouse and/or his children and/or the A PERSON FAMILY TRUST
GROUP B BENEFICIARIES
B PERSON and/or his spouse and/or his children and/or the B PERSON FAMILY TRUST
WHEREAS the founders are in agreement with each other and desirous of creating the trust herein referred to for and on behalf of the aforementioned beneficiaries subject to the terms and conditions as hereinafter set forth in more detail.
AND WHEREAS the trustees declared themselves willing to accept the donation and to hold and utilise it on behalf of the beneficiaries subject to the conditions as set forth by the founder and as it is recorded in the deed of trust:
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
Definitions
In the deed of trust, unless the context otherwise indicates, words denoting the singular also include the plural and vice versa; words denoting the masculine gender also include the feminine gender and vice versa; the following expressions shall have the following meanings, namely:
“Beneficiaries” refer to individual income beneficiaries as well as individual capital beneficiaries and are divided into groups as indicated in the preamble hereto;
“Income beneficiaries” refer to the persons or institutions (including trusts) designated as such in the preamble to the deed of trust and who can benefit from the income of the trust in accordance with the prescribed discretionary powers of the trustees;
“Capital beneficiaries” refer to the persons or institutions (including trusts) designated as such in the preamble to the deed of trust and who will become entitled to the trust capital at the vesting thereof and who can benefit from the trust in accordance with the prescribed discretionary powers of the trustees;
“Groups of beneficiaries” is as described in the preamble hereof;
“Benefit in terms of the formula” or “formula for benefiting” of the groups of beneficiaries means: If and when the trustees exercise their discretion in terms of this deed to distribute/allocate benefits to beneficiaries then they shall distribute/allocate it to the different groups of beneficiaries according to the following formula (provided that, as far as the benefit of the individual beneficiaries within the groups are concerned, the discretion of the trustees is not limited):
Group A income and capital beneficiaries: 60%
Group B income and capital beneficiaries: 40%
“Capital” or “trust capital” means all and any assets including any gains on such assets of the trust, excluding income, and includes any net income not distributed which is added to capital;
“Children” means all legitimate descendants as well as legitimate adoptive children and their children;
“Maintenance” referring to a person, means, without derogating from the generality of the expression, his travels, holidays, expenses for medical, dental or similar services and advice, reasonable amenities of life and amusement, taxes, general care, welfare, education and training (also including higher education), life and other insurance for himself and his dependants, living accommodation and motor vehicles for himself and his establishment in a business or profession or in matrimony;
“Deed of trust” or “deed” refers to this document as a whole;
“Person” also includes a trust;
“Spouse” shall include widow or widower but not a divorcee;
“Trustees” means the persons who signed the deed of trust as trustees and also all later and alternative trustees of the trust as appointed from time to time and can be divided into one or more groups as indicated in the preamble of this deed;
Titles (captions) serve merely as reference and for convenience and shall in no way be used to interpret the contents of the deed of trust;
“Benefits to beneficiaries” include income and/or capital allocated/distributed to beneficiaries.
NAME
The name of the trust is THE BEST VENTURE TRUST.
DONATION
The founders hereby each donate to the trustees the amount of R100,00 (One hundred rand) which immediately vests in the trustees in their official capacity to be held in trust and administered according to the terms of this deed.
REST OF TERMS OF AGREEMENT: |
By means of a will
In the case of a trust created by a will, the trust is formed by a testator bequeathing an asset either to the beneficiaries, but because of an incapacity such as minority, the testator then also appoints trustees to administer the property so bequeathed to the minor, (bewind trust) or the testator bequeaths the asset to the trustees to administer it for the benefit of the beneficiaries (usually subject to numerous conditions and discretionary powers given to the trustees – the trust in the strict or narrow sense).
It is advisable to allow the trustees of a testamentary trust also enough flexibility and as full powers and competencies as possible and to avoid unnecessary limitations or the so-called “ruling from the grave”.
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Precedent 4 (Bewind trust: Testamentary: founding stipulations)
(Take note that this kind of trust renders very little if any protection against financial and other risks of a beneficiary) |
I hereby bequeath the residue of my estate to my children in equal shares. In the event of any child succeeding to a share of my estate, in terms of this my will and not having attained the age of 21 (twenty one) years, I direct that the benefit to such person shall be held in trust by my trustee to be retained by him on behalf of any such beneficiary and be administered by him for the maintenance, education, well-being and general advancement in life of such beneficiary until such time as he/she has attained the age of 21 (twenty one) years when all such assets then under administration shall be handed over to the said beneficiary.
I specifically provide that my trustee shall be entitled in his entire discretion to utilise both the income and the capital assets and amounts administered by him for the above purposes.
My trustee shall have full power in his absolute discretion to act in all matters pertaining to the assets under his control and in relation to the assets, securities, funds and investments (“assets”) entrusted to him without limiting the generality hereof I specifically direct that he shall have the following powers:
(Note that these stipulations have to be supplemented with sufficient powers to the trustees.) |
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Precedent 5 (Trust in strict sense: Testamentary: founding stipulations) |
The residue of my estate is bequeathed to the trustees of the IMMORTAL TRUST a testamentary trust which I hereby create, to be held and administered in terms of the provisions of the trust as stated in Annexure A hereto. The capital (all assets in trust) and all powers of the trustees described in the Will vests in the trustees in their official capacity as trustees in order to enable them to deal with the capital and income of the trust on behalf of the beneficiaries and not for the personal benefit of the trustees. The extensiveness of the powers which vest in the trustees must be interpreted subject to the fact that the essence of a trust is the benefit of the trust beneficiaries. The trust is a discretionary trust concerning the utilisation, allotment and distribution of trust income and capital and the trustees can allot or keep back income and capital according to their absolute discretion, to any beneficiary who qualifies as an income and/or capital beneficiary. There is, therefore, no obligation on the trustees to treat the beneficiaries equally. The beneficiaries of the said trust shall be:
(Note that these stipulations have to be supplemented with sufficient powers to the trustees) |
By means of a court order
Although the court in some instances can be regarded as the founder, the initiative for the creation usually comes from the parties seeking the order. Such a trust is normally created to address a particular problem such as the awarding of damages, or an amount of compensation, to a person who is not capable of handling his own affairs or in the case of divorce where the parties seek to protect a family asset, such as a house, for the children (Cameron 118 and the case law referred to in fn 4 as well as Olivier 242 and Du Toit 1.5.3). In all these instances the tax implications (such as donations tax, transfer duty, capital gains tax and income tax) cannot be ignored and the trust deed, as well as the passing of any funds or assets to the trust, need to be structured very carefully, in order to retain the protective qualities of a trust (see B22.1 infra and Estate Welch v Commissioner for SARS [2004] 4 All SA 261 (SCA) and Welch’s Estate v Commissioner, South African Revenue Service 2005 4 SA 173 (SCA)).
The trust can sometimes settle a very sensitive dispute regarding the protection of the family home and other fixed assets in a divorce case. The court can, by means of a settlement agreement between the parties, be requested to make it a court order in terms whereof the ex-husband and wife can both be appointed as trustees of such a trust, giving both an equal say in the handling of the property. The beneficiaries can be any one or more of the children of the divorcing parties, thus enabling the trustees (parents) to see how the children develop and decide later who should get which property as beneficiary (cf B5.3 supra as well as the tax implications).
By means of a statute or on statutory authority
The National Parks Board and the Development Trust and trusts created in terms of the Attorneys Act are examples of trusts that were created through legislation (Acts 57 of 1976, 18 of 1936 and 53 of 1979; see also Cameron 16 and 137).
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