A trust deed is created by a founder and registered with the Master of the High Court who issues a letter of authority that can be seen as the “identity document” of the trust. The trust deed contains all the clauses that will govern the trust for its duration. This document can be seen as the “body” of the trust. The letter of authority appoints trustees who will administer the trust for and on behalf of the beneficiaries of the trust. A trust must, however, be regarded as unique in that it isn’t a legal entity such as a company. The assets of a trust vest in the trustees but can only be dealt with in the interest and for the benefit of the beneficiaries.
In a recent decision of the High Court in Gauteng, involving a divorce matter, the principles governing a trust were clearly set out. In this case, both spouses were trustees of four separate trusts created by them when their marriage was still in calm waters.
The honourable Court started its judgement with the following statement: “The present application and counter application stems from a marriage relationship which ran aground and settled on the rocky shores of the divorce courts door. The first applicant and first respondent (both being Trustees) were married to one another but drifted apart into the divorce court where the estranged marriage was finally dissolved on 6 September 2021. The divorce proceedings continued and unlike the Titanic, it took more than six years to be laid to rest, or so it looked.”
The application was bought by one of the trustees in his capacity as trustee to have one of the other trustees (being his spouse) removed as trustee because she refused to perform her duties as such. In this regard, the Court made the following comment:
“It is common cause that the first respondent, for reasons of her own, did not participate in the management of the Trust as was required from a diligent Trustee… It is further common cause that the first respondent, despite being invited to attend to trustee meetings on numerous occasions, did not attend any meeting since 16 November 2017 until recently during 2021. For almost five years she did not attend to trustee meetings…”
The court, looking at the applicable legislation and previous cases on point, then went on to discuss the legal position when it comes to trusts. The following is noteworthy:
- The Trust Property Control Act (67/1988) provides that: “A Trustee shall, in the performance of his or her duties and the exercise of his or her powers, act with care, diligence and skill which can reasonably be expected of a person who manages the affairs of others.”
- It is common knowledge that a trust is not a legal persona but can be seen as a legal institution sui generis (unique). The trustee is the owner of the trust property for the purposes of administration of the trust but the trustee has no beneficial interest therein.
- A trust is an accumulation of assets and liabilities constituting a trust estate, which is a separate entity… with no legal personality. It vests in the trustees, and it must be administered by the trustees, and it is only through the trustees that a trust can act.
- The standard of care to be observed is accordingly not that which an ordinary man generally observes in the management of his own affairs but that of the prudent and careful man – or, to use the technical expression of Roman Law, that of the bonus et diligens paterfamilias (literally translated as “good and diligent head of the family”).
- It is not required of a trustee to be totally impartial or to have no connection with the beneficiaries, but rather that he or she is capable of bringing the necessary independent mind to bear the business of the trust and to decide what is in the interest of the trust.
The court then went on to discuss the removal of a trustee. It stated that the overriding question will always be whether or not the conduct of the trustee imperils the trust property or its administration.
In this case, given the facts, the Court granted the application for the removal of the trustee. As can be seen from the above, the responsibility and level of trust (no pun intended) required from a trustee is extremely high. The legal term used is uberimae fides, which in ancient Roman times alluded to the highest degree of good faith. Acceptance of the position of trustee must therefore never be taken lightly.
Please contact us for assistance in the creation of a trust.