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    Chapter 18 - Business Trust

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    bongiwemadonsela956

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    Chapter 18 - Business Trust

    Uploaded by

    bongiwemadonsela956
    14 views14 pages

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    14 views14 pages

    Chapter 18 - Business Trust

    Uploaded by

    bongiwemadonsela956

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 14

    CHAPTER 18

    Business Trusts

    1
    CONTENT

    1. MEANING

    2. PARTIES

    3. FORMATION

    4. TYPES

    5. CONSEQUENSES

    6. DUTIES & POWERS

    7. RIGHTS OF BENEFECIARIES

    2
    MEANING

    What is a trust?
    A trust has the following 4 key characteristics:
    • Relationship that has been created by a person
    (founder/donor/settlor)
    • Through placing assets under the control of another person/s
    (trustee or trustees)
    • Created during the founder’s lifetime (an inter vivos trust) or
    on the founder’s death (testamentary trust or a will trust)
    • For the benefit of 3rd person (beneficiaries)
    3
    MEANING
    The complete law of trust is not found in a single statute and it is not
    codified, however common law and decides case law (precedents)
    governs trusts. But the 1 statute that applies specifically to trusts is
    the Trust Property Control Act, no 57 of 1988.

    Look at how this act defines a trust on page 435 4th Ed. This definition
    provides for 2 types of trust (apart from inter vivos- and will trusts):

    • Ownership and control of trust assets


    Ordinary trust lies with the trustees

    • Beneficiary has ownership of the trust


    Bewind trust assets
    • But the control is with the trustee
    4
    MEANING
    The uses of a trust:
    • Estate planning
    • Protect assets from a beneficiary's personal creditors and
    misfortunes
    • Business purposes (instead of a company, close corporation
    or partnership)

    Great advantages:
    • Flexibility and lack of statutory formality in the creation,
    administration and operation of a trust

    5
    PARTIES
    3 main parties to any type of trust:

    • Person who forms or establishes the trust


    Founder • Also known as the donor or settlor

    • At least 1 trustee, but there are no maximum number of


    trustees required
    • Responsible for the administration and control
    Trustees • Must comply with the provisions of the trust deed and law
    • If no trustee, the Master of the High Court will be appointed

    • These are the persons who benefit in terms of the trust deed
    • They derive their rights from the terms of the trust deed
    Beneficiaries • Must at least be 1 beneficiary

    6
    FORMATION

    • Trust is a creation from Created


    DOCUMENT, unlike companies or
    close corporations which are
    or
    creations of STATUTE
    • The document is called a Trust
    Deed
    Contract Will of a testator
    (Inter vivos (testamentary
    trust) trust)

    7
    FORMATION (continue)
    How to form a valid trust?
    The following are essential elements for the creation of a valid trust:
    • Intention by the founder to create a trust – must be expressed by
    way of creating obligations (i.e. trustees must manage and control
    the assets under their care for the benefit of the beneficiaries)
    • Object of the trust must be lawful
    • Trust property must be defined with certainty
    • Trust property must be sufficiently certain
    • Must be at least 1 beneficiary
    • Must be reduced to writing (trust deed)
    • At least 1 trustee must be appointed

    8
    TYPES (continue)

    DIFFERENT TYPES

    Ownership &
    control of trust
    assets lies with Testamentary Statutory trust
    the trustees Beneficiary have trust is where the (i.e. game
    (bewind trust) ownership of founder is dead reserve), Court
    Example: trust assets but AND order trustees
    someone these are under (settle divorce
    Inter vivos trust
    bequeaths assets the control of the is where the action),
    to their minor trustees international
    founder is alive
    child, but assets (business trust or trusts or
    are under the family trust) “offshore” trusts
    control of a
    trustee

    9
    CONSEQUENCES
    • Trustees have certain obligations, duties and powers –
    Obligations is derived from the common law or trust deed,
    while duties and powers is found in the provisions of the
    trust deed
    • Beneficiaries have certain rights – which is also found in the
    trust deed

    10
    DUTIES & POWERS

    Common law and statutory duties of a trustee:


    1. Act with care, diligence and skill
    2. Open a separate trust account
    3. Indicate in his bookkeeping the property he holds as trustee
    4. Clearly indicate that trust property is indeed trust property
    5. Must make any account / investment at a financial institution identifiable as a
    trust account or trust investment
    6. Upon written request from the Master, account to the Master in accordance with
    the Master’s requirements, for the trustee’s administration and disposal of trust
    property
    7. May not destroy any document which serves as proof of the investment, safe
    custody, administration, alienation or distribution of trust property before the
    expiry of period of 5 years from the termination of the trust, without the written
    consent of the Master 11
    DUTIES & POWERS (continue)

    8. Administer and protect trust property and collect debts due in respect of the
    trust property with reasonable diligence
    9. Under a duty to conserve the trust property although in certain cases s/he may
    be entitled or even under a duty to sell and reinvest the proceeds
    10. Must give effect to the terms of the trust deed / instrument
    11. Must act with the utmost good faith
    12. Must exercise an independent discretion at all times with respect to that
    matters
    13. Must not expose the assets of a trust to undue risk
    14. Must invest the trust property productively
    15. A trust owes the utmost good faith towards all beneficiaries
    16. Must account to the beneficiaries
    17. Must act within the powers granted in terms of the trust deed
    12
    DUTIES & POWERS (continue)
    18. Must take remuneration only to which s/he is entitled
    19. Must transfer income and/or capital to the beneficiaries when obliged to do
    so
    20. Must lodge amendments to the trust deed with the Master
    21. Must furnish the master with an address where notices and processes can
    be delivered and must notify the Master of any change of address

    A trustee derives their powers from the trust deed

    13
    RIGHTS OF BENEFICIARIES
    Purpose of a trust: For trustees to MANAGE and CONTROL trust
    assets on behalf of a beneficiary or beneficiaries

    Any right of a beneficiary can be ceded, provided that this is not


    prohibited by the trust deed

    14

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