TBS 410 EXAM - Lecture notes 12 PDF

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Warning: Error during font loading: XMLHttpRequest is not definedTBS 410 EXAM NOTES.Study Unit 1: Trust LawThe “basic trust idea” or core idea of the trust: Land and Agriculture Bank of SA v Parker: separation of ownership (and thus control) from enjoyment. Also codified in section 1 of the Act. The...

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TBS 410 EXAM NOTES. Study Unit 1.1: Trust Law The “basic trust idea” or core idea of the trust:

- Land and Agriculture Bank of SA v Parker: separation of ownership (and thus control) from enjoyment.

- Also codified in section 1 of the Act. - The trustee must control the trust assets for the enjoyment of the TB’s. - Questions: 1. Can a trustee be a beneficiary as well ? 2. Can a sole trustee also be a beneficiary ? 3. Position of sole trustee, who is co-beneficiary at creation, becomes sole beneficiary at a later point ? Land and Agriculture Bank of SA v Parker: • Core idea of the trust: separation of enjoyment from control. - There must be a separation between the people who administer the trust (trustees) & hose who enjoy the benefit thereof (beneficiaries). - If they are exactly the same people there will be an abuse of the trust form. - A trustee can be a beneficiary (section 12 of TPCA) BUT 1 trustee cannot be the sole beneficiary - because then the trustee will be acting on behalf of himself & not on behalf of another. - The central notion of the core idea is that the person entrusted with control exercises it on behalf of & in the interest of another. - Thus their duties & standard of care required is derived from the core idea of a trust. - That is why the sole trustee cannot be the sole beneficiary at the trusts inception = no trust will come into existence. What purpose does separation serve: • Serves to secure diligence on the part of the trustee. • Same separation also ensures independence of judgement on the part of the trustee. • Also prevents abuse of the trust form (careful scrutiny of transactions & formalities). Situation where there are 2 trustees who are BOTH beneficiaries - and later on 1 dies thereby leaving the sole trustee as the sole beneficiary: • There is still a valid trust. • NOW the Master must step in & appoint a new trustee or the trust instrument should make provision for the remaining trustee to appoint another trustee. • This must happen in order for the trust to continue. • Section 7(1) & (2) of TPCA: Master has to appoint a new trustee in order to ensure that the persons who control are not exactly the persons who enjoy. • The founder of an inter vivos trust can be a co-trustee & a sole beneficiary because

Nieuwoudt v Vrystaat Mielies EdmsBpk: • Mr Niewoudt created a trust whereby he & his wife were the sole trustees of a family trust, and also the only incomes beneficiaries of this trust (there where other capital beneficiaries). • N concluded an advance contract of sale to sell next years maze crop & he was the only one that signed the contract. • Two months later he realised that he could get more per ton so he wanted out of the contract. - He denied the validity of the CTR & said that he could not sign alone for the contract as there are 2 trustees & as such they always have to act jointly because they are co-owners. - THUS: the contract is invalid. • Court held: it is separation that instils diligence on the part of the trustee to take proper care of the assets & an independent trustee would have no interest to conclude agreements which would later prove to be invalid. • The court also recognised a newer type of trust being a ‘family trust designed to secure the interests & assets of a family’. • The assets of the family are vested within the trust BUT everything else remains as before. • There is no functional separation between enjoyment & control. • THUS: piercing of the veneer of the trust. - There is a valid trust but there was abuse. - NOW the courts through piercing of the veneer go behind the trust form & hold the trustees liable for abuse or keep the trustees to a transaction. - They do this to prevent the so-called alter ego trust.

Study Unit 1.2: Trust object must be lawful & not illegal or contrary to public policy:

- Section 13 of TPCA: judicial variation of the trust instrument. • In order for the court to vary (Harvey v Crawford): 1. The offending provision must bring about consequences that the founder did not foresee (if he/she did foresee = s13 not applicable); 2. Hampers the achievement of the objects of the founder, prejudices the interests of the beneficiaries & is in conflict with public interest. - BOTH jurisdictional facts must be established before a s13 application will succeed. - BOE trust: court was not satisfied that both jurisdictional facts had been established, BECAUSE the testatrix foresaw that the provision would be racially discriminatory as she included an alternative provision (THUS: variation i.t.o s13 not possible). • The right to freedom of testation forms part of the right to property in section 25 of the Constitution. • Want to remove provisions that are discriminatory (racially etc.) or provisions that are repugnant to public policy (Syfrets case). Harvey v Crawford: • SCA was tasked with determining whether a donor, by using the words ‘children’, ‘issue’, ‘descendant’, ‘legal descendant’ in the Trust Deed intended to benefit adopted children. • In January 1953, Mr Louis John Druiff (the donor) executed the Trust Deed i.t.o which he nominated his 4 children, and upon his children’s death, his grandchildren, as beneficiaries. • One of his daughters, Ms Harper, was married but did not have any children. • Subsequent to the donor’s death, Ms Harper lawfully adopted two children. • Upon the respective deaths of Ms Harper’s three siblings, their shares of the capital of the Trust Deed duly devolved upon their children. • When it became evident that there was uncertainty as to whether her two adopted children would, upon her death, receive their share of the capital, they approached the HC for relief. • They argued that the Trust Deed should be interpreted to include adopted children and not merely the donor’s biological descendants. - They argued that an interpretation that would have the effect of the donor’s biological descendants being the only ones benefiting from the Trust Deed would bring about consequences that the donor did not contemplate or foresee. • The respondents contended that the donor enjoyed legal assistance in the execution of the Trust Deed and in spite of that, he did not take steps to make express provision for the inclusion of adopted children in the Trust Deed.

• Court held: that the Trust Deed had the effect that only the biological descendants of the donor’s children were beneficiaries of the Trust. The court was satisfied that that was the clear intention of the donor. - If the donor had intended to include adopted children he would presumably have been advised of the need to expressly include them. - His omission to do so was indicative of the fact that he had no such intention. • In cases where the court have amended discriminatory testamentary or trust provisions - a determining factor in the weighing-up process was the public nature of the objections benefit. - THUS: i.t.o a public nature the right to equality will be afforded greater weight than the right to freedom of testation. - However, this is a private trust deed thus it has no provisions which affect the public = it benefits no members of the public nor does it benefit public bodies. - Therefore, NOT contrary to public policy.

Study Unit 1.5: The Trustee & Trust Administration Chapter 6: The Trustee The competence to be a trustee: • To be competent to act as trustee: (a) Must have necessary competence; (b) Appointed as trustee; (c) Accept appointment; & (d) Master must authorise appointment. • WHO: - Natural persons (BUT must have contractual capacity); & - Juristic persons such as companies (e.g. ABSA trust). • Trustee is a holder of a fiduciary office - controls property to advantage of trust beneficiaries OR impersonal object. • No special requirement by law: - In the sense of a specific degree or qualification one must hold – do NOT need qualifications (UNLESS trust instrument prescribes certain express/implied requirements). - E.g founder can appoint his sister who is a teacher. • Trust instrument (founder) can make provision for special qualification/ limitations: - Following ex lege (in terms of law) disqualified or legally incompetent: ✓ Person who lacks contractual capacity; ✓ Section 4A Wills Act: any person who signs or is disqualified from benefiting from a will may NOT be appointed as trustee of a testamentary created i.t.o the will (but Master can still appoint i.t.o section 7(2) TPCA & also the Court); ✓ Any person who is subject to immediate removal on grounds listed in section 20(2) of TPCA; & ✓ The Master may not act in his/her official capacity.

- Section 6(4) of TPCA: in whose name must the letters of authorisation be issued? • If a corporate body is appointed as trustee letters of authorisation must be issued in nominee of that company.

Trustee’s appointment:

- Neither TPCA or common law prescribes a particularly form of appointment & NO restriction of number of trustees appointable.

- One of the following ways: (1) Appointment by founder: provisions of agreement by which trust inter vivos is created - trust instrument appoints the trustee. • Founder usually points trust’s initial trustees & determines number of trustees. (2) Power of assumption: appointment by trust’s serving trustees. • Power given to trustee’s to appoint BUT must be expressly given in the trust instrument. (3) Power of subrogation: trust instrument can make provision for filling of vacancies/appointment of additional co-trustees. • Must be expressly provided for in the trust instrument. (4) I.t.o provisions of will: the clause creating the trust will contain a resolution pertaining to trustees i.e. the will appoints the trustees. • BUT: testator may not delegate power to appoint trustees (invalid delegation). • Braun v Blann & Botha and Administrators, Estate Richards v Nichol. (5) Appointment by Master: section 7 of TPCA empowers the Master ti appoint trustees in 2 scenarios (compulsory or discretionary). - Section 7(1) of TPCA: requires Master to consult with the interested parties prior to appointing a trustee. • Compulsory - ONLY if the trust instrument is silent on appointment/ vacancy.

- Section 7(2) of TPCA: appointment of co-trustees. • Discretionary - Land and Agriculture Bank of SA v Parker. ✓ Independent trustee: Master should ensure that an adequate separation of enjoyment & control must be kept - this can be done by the appointment of an independent trustee. ✓ In order to minimise the abuse of the trust - the Master should upon registration of a trust insist that there be at least one independent trustee.

✓ Two instances when an independent outsider must be appointed: • Where the trustees are all beneficiaries; & • All the beneficiaries are all related to one another. • E.g. family trusts.

- THUS: Master must appoint an independent outsider who is -

neither a TB nor has any family relation/connection, blood or other, to any of the existing/proposed trustees. Does NOT have to be a professional person (e.g. lawyer) BUT someone with proper realisation of trusteeship and responsibilities & realises what it entails.

(6) Appointment by the HC: inherent power to make necessary appointment/ additional trustee’s.

Acceptance of the appointment as a trustee: ○ Trustee must accept his appointment as such voluntarily. ○ Appointment ONLY effective after acceptance. ○ Refusal to accept appointment will not result in failure of the trust = trustee office merely remains vacant until its filled. ○ HOWEVER, because an inter vivos trust is created by an agreement between the trust founder & trustee - refusal by T of appointment will prevent the creation of an inter vivos trust.

Authorisation to act as trustee: * NB NB – going to get a question on this. Section 6(1) TPCA: letter of authority by Master. - Any person appointed shall act in that capacity only if authorised thereto by the Master in writing. - May NOT perform any act as trustee until authorised. Section 6(2) of TPCA: prerequisites - T must furnish security. • What about juristic acts performed by an unauthorised trustee? - E.g. a trustee after he has signed an inter vivos trust – has accepted appointment BUT has not been authorised – now there is a sale of the trust property - Will that purchase agreement be a valid agreement?

Simplex (Pty) Ltd v Van der Merwe: • Trustees entered into an agreement of sale before they acquired their letters of authority i.t.o section 6(1). • Applicant argued that absence of authorisation renders the CTR null & void. • Court held: wording of s6(1) is mandatory - “no trustee shall act..”. - Contract = void. - Absence of authority renders any trustee act void & of no force and effect. • Neither the court nor the Master can ratify the agreement. • To ratify would be to validate acts expressly prohibited by statute = court CANNOT do that. • Purpose of section 6(1): “public interest” - Protection of TB’s = but in this case the beneficiaries said they were happy with this agreement (not to their detriment as such) - thus another purpose is to protect the public at large. - NOT purely for the benefit of TB’s it also serves as a written warning to outsiders (proof of trusteeship).

- Confirmed by Lupacchini case. - Simplex is law. Kriel v Terblanche: • Applicant wanted to create a trust - appointed son & daughter-in-law as trustees. • On the same day he sold the farm as trust property to the trust. - Obligation creating agreement VOID = concluded contract before trustee has authorisation i.t.o section 6(1). • Abstract theory relating to passing of ownership: - Entails that once ownership passes - ownership did NOT pass on the day of the signing (merely underlying reason). - ALL that is necessary for transfer of ownership = serious intention to pass ownership (consensus). - The real agreement is not dependent on the validity of the CTR of sale for transfer of ownership to be successful. - The abstract theory only demands that a valid real agreement must exist - thus BOTH parties must intend for the transfer of ownership to occur. - THUS: registration of transfer is valid. ✓ Because a valid real agreements exists & the trustee received authorisation before registration of transfer. ✓ Ownership was validly transferred to the other trust. ✓ Kriel case serves as a loophole i.r.o the general rule that any CTR concluded by an unauthorised trustee is null & void. * In Simplex no transfer took place yet, WHEREAS in Terblanche transfer did take plac

Fiduciary or common law duties: • Principal skills include:

Impartiality: • Trustee may NOT place him-/herself in a position where his personal interests conflict with the duties of the TB’s. • The trustee must further the interests of the TB’s an not his own. Law Society of the Cape of Good Hope v Randell: *NB • Randell, as an attorney, had to prepare & register the trust deed and deal with all the legal implications concerning the development of the property. • The trust was registered in April 1999. • The founder & donor was L, the trustees were L, S & R, and the sole beneficiary was the School. • The trustees were also members of the governing body (GB) of the school. • A few days after the registration of the trust - the trust purchased immovable property from a company represented by S. • The property was leased by the trust to the school on a monthly basis. • THUS: the school indirectly paid for the purchase price of the property via monthly rent & in return the school benefitted from the use of the property. • The trustees then decided to develop the rest of the property for their exclusive benefit (the school would only benefit from the existing buildings). • 6 years later the trustees wanted to amend the trust deed i.t.o the definition of beneficiaries - the school would no longer the sole beneficiary & the trustees would be able to add beneficiaries. • The trustees resolved to appoint themselves as additional beneficiaries. - Did not furnish security of this to the Master. • 8 months later the trust sold the residual property to a developer & each trustee received R10 000 in their capacity as TB & then the trustees distributed R2.4 million to themselves in equal portions in their capacities as TB. • 2 years later the auditors came across various irregularities i.r.o the Trust & the conduct of the trustees. • When R became aware of this he purported to remove the company as auditors from both the GB & trust. • R thus acted in a serious breach of his fiduciary duty as trustee & he was not entitled to place himself in a position where his personal interest conflicted with his duties as a trustee - NOR was he entitled to make a secret profit at the expense of the school. • A trust is not a separate legal identity BUT its assets & liabilities vest in the hands of its trustees who are required to keep trust assets separate from their personal assets & enjoyment. • In they representative capacity they are obliged to deal with trust assets to further the interests of the TB & NOT to further their personal interests. • THUS: R had a fiduciary duty to act in the best interests of the TB (the school) and not to act to his own advantage at the cost of the TB’s.

• One of the principles of a FD is: trustees may not place themselves in a position where their personal interests conflict with their duties to the beneficiaries, nor may he/she make a secret profit. • By appointing, or allowing himself to be appointed, as a TB, R placed his personal interests in conflict with his duties as trustee. • If R elected to be a TB he could NOT in law remain a trustee & if he elected to remain trustee he could NOT in law be appointed as a TB. • ALTHOUGH a trustee may also be a beneficiary, its must always be subject to the principle that he may not put his personal interests in conflict with his duty as trustee. • The trustees used the trust as a vehicle to conduct their joint venture with the aim to benefit themselves financially. • The trustees concealed information from the GB & school - they appointed themselves as TB’s secretively & clandestinely WITHOUT the knowledge/consent of the school or GB members.

Accountability: - Trustee’s accountability for trust administration by keeping trust property separate from his/her private property & rendering a proper account of trust administration. Doyle v Board of Executors: • Duty of accountability was officially categorised as a fiduciary duty in this case. • TB sought from trustee an accounting record demonstrating that he (TB) received what he had been entitled to. • The trustee argued that ONLY the founder was entitled to an accounting & TB was entitled to an accounting only after the founder’s death. • Court used the principle of agency to derive a judgmenet. • Court held: duty to maintain proper accounts is derived from the fiduciary office he holds, thus the trustee has a duty of good faith to the TB’s, thereby owing the TB’s an account. • Duty of trustee to account to TB’s. • The office of the trustee requires of a trustee to act with utmost good faith & in the best interests of the TB’s. • Despite the contractual nature of a trust, it is “…unquestionable that the trustee occupies a fiduciary office, by virtue of that alone he owes the interest of good faith towards all beneficiaries, whether actual or potential”. • Nature of the trustee’s office is the basis of this judgement.

Independence: - Duty to act independently i.r.o trust administration.

Tijmstra v Blunt-MacKenzie: • Trustee must always act in a manner & form that is expected of a bonus et diligens paterfamilias. • Trustee must ensure that a conflict on interest never arises between his private estate & the estate of the trust. • Trustee who fails to comply with this duty commits a breach of trust and can be removed from the trustee office by the court. • Trustee dealt with the trust assets & money as he pleased & sold the immovable property within the trust. • This was done without the consent of Tjimstra. • Court held: trustee treated the property as his own & accordingly he had to be removed as trustee. • Thus a trustee who breaches ANY of his fiduciary duties can be removed ...