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Summary - Business Trusts Mercantile law (merclaw292)
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Chapter 14: Business Trusts: A trust is a legal concept or relationship in terms of which one or more
persons (the 'founder(s)') hand over assets to another person or
persons (the 'trustee(s)') to administer it for the benefit of a third
party or parties (the 'beneficiary(ies)') or for one or more impersonal
objects.
Goodricke & Son (Pty) Ltd v Registrar of Deeds, Natal:
'In the wide sense a trust exists when property is to be held or
administered by one person on behalf of another, or for some purpose
other than his own benefit. ... For the creation of a trust in the narrow
or strict sense the two essential elements are the segregation of the
trust assets by the founder, and the creation of an obligation to
administer otherwise than purely for oneself.'
Trust can be created by means of a will or contract.
Ownership often vests in the trustee, however it is possible to create
a trust were the beneficiary owns the trust assets and the trustee
only manages it.
Legal and natural persons may be members to a trust. Because of this,
trust offers a distinct advantage to CC’s, where membership is limited
to natural persons, and a company where only natural persons may be
appointed as directors.
Nature:
The assets, liabilities, rights and duties of the trust vest in the
trustee. They vest, however, in the trustee in his official capacity as
trustee and not in his personal capacity. In his capacity as trustee,
the trustee normally does not acquire any personal rights to the trust
property and does not personally incur any liabilities in respect of the
debts of the trust. Although the trustee is the owner of both the trust
assets and the assets in his private estate, the law treats him as two
owners of two totally separate estates.
Land and Agricultural Development Bank of SA v Parker 2005 2 SA 77
(SCA): ‘Except where statute provides otherwise, a trust is not a legal
person. It is an accumulation of assets and liabilities. These constitute
the trust estate, which is a separate entity. But though separate, the
accumulation of rights and obligations comprising the trust estate does
, not have legal personality. It vests in the trustees, and must be
administered by them...’
Trust is not a legal person. It does not, therefore, enjoy a separate
existence and is also not the subject of its own rights and liabilities.
Exception (for example):
Companies Act 71 of 2008
Section 1 definition of
“juristic person includes (b) a trust irrespective of whether or
not it was established within or outside the Republic”.
A trust can only be a holding (company) structure in a group of
companies but it cannot be a subsidiary as stipulated in section 3(1)a.
Only a company can be a subsidiary.
Creation of a trust
How is a trust created?
Contractually (inter vivos) – trust created during the lifetime of founder.
Testamentary (mortis causa) – trust created in expectation of
approaching death.
Court order
Requirements:
1. The founder must intend to create a trust.
2. The founder must express his intention in such a way that a legally
binding trust obligation is created. This obligation either consists of a
duty on the trustee to administer the trust property in terms of the
trust document or, in the case where a trustee has not yet been
appointed, of a duty on the founder to ensure that the trust assets are
administered by a trustee. In order to create a legally binding
obligation, the will or agreement which gives rise to the obligation
must be legally valid.
3. Trust property should be defined with sufficient certainty.
4. Object of the trust must be certain.
5. Trust object should be lawful.
Trust instrument: Land and Agricultural Development Bank of SA v
Parker: “Who the trustees are, their number, how they are appointed,
and under what circumstances they have power to bind the trust
estate are matters defined in the trust deed, which is the trust’s
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