You and your client decide to create a Trust as part of his/her estate planning process.
The next question therefore is: What are the essential requirements for a valid Trust as set out in the Trust Property Control Act?
In this, our third discussion on Trusts, we discuss these issues.
In the creation of a Trust, the following are the essential requirements of a valid Trust as per Administrators, Estate Richards V Nichol 1996 (4) SA 253 (C):
- The founder must have a clear and unambiguous intention to create a Trust and transfer control.
- The Trust must be set up in writing in the trust instrument/Trust Deed.
- Trust property must be clearly defined.
- Trust beneficiaries must be clearly defined or identifiable.
- The object of the Trust must be clearly stated and lawful.
- There must be a binding obligation on the trustee(s) to administer the Trust property.
- Trust property must be transferred into the Trust.
- Trustees must be authorised and have the capacity to act.
When contracting with a Trust, the following rules apply:
- The Trustees must be qualified to act. Should a trustee not be duly appointed or becomes disqualified, the person cannot validly represent the trust. This can render agreements void.
- The Letters of Authority granted by the Master of the High Court is the written evidence of duly appointed trustees; one must always make sure that that the person representing the trust is capable of binding the trust.
- Verify that the required minimum number of trustees as stipulated in the trust deed is in place; an agreement will not be binding without this. (This is especially important if a trustee has died or was disqualified).
- Ensure that the “Joint Action Rule” is adhered to – co-trustees must always act jointly regarding Trust administration.
Structure of a Trust:
The following are the elements of a Trust:
Founder: Person who forms a Trust to transfer ownership of assets/funds.
Trustees: Appointed persons who administer and control the Trust assets on behalf of the beneficiaries.
Trust: Entity that holds the Trust property.
Assets: Trust property (assets/funds) is transferred to a Trust by:
- Donation
- Sale
- Death
Beneficiaries: Person/s who benefit from the assets, they can either be income or capital beneficiaries, and can have vested or discretionary rights.
In the estate planning and Will drafting discussion, one needs to be familiar with the various pieces of legislation to best assist clients. It is therefore important to deal with a specialist about the formation and administration of a Trust to avoid the pitfalls and challenges.