Abuse of the trust figure in South Africa : an analaysis of a number of recent developments

AuthorS.A. Hyland,B.S. Smith
DOI10.10520/EJC51199
Published date01 January 2006
Date01 January 2006
Pages1-22
SA Hyland and BS Smith
Abuse of the trust figure in South
Africa: An analaysis of a number of
recent developments
1. Introduction
The South African trust’s flexibility and adaptability have contributed to its
popularity in recent times.
1
One of the many guises in which this is
evident is in the field of estate planning, where, for example, the trust is
often created in order to protect the founder’s assets by removing them
from his personal estate or to decrease the founder’s estate in order to
minimise adverse tax implications.
2
A further example is the fact that the
trust is often used as a tool by means of which the founder can “control”
his estate after his death.
1 See paragraph 1.9 of the South African Law Commission’s (hereinafter
referred to as the SALC)
Report on the review of the law of trusts
(Project 9 of
June 1987).The South Afr ican Law Commission is now known as the “South
African Law Reform Commission” — see section 5 of the
Judicial Matters
Amendment Act
55 of 2002. Also see
Land and Agricultural Bank of South
Africa v Parker
2005 2 SA 77 SCA at paragraph [23] and Honoré and
Cameron 2002: 19-20.
2 Williams at <http://www.lawsure.co.za/htdocs/4_Newsletter/newsletters/2006
_07_25_Trust_us.pdf> accessed on 5 December 2006;Honoré and Cameron
2002: 5; Du Toit 2002: 1,2; King and Victor 2004/2005: 316-343. For an
exposition of the multi-faceted nature of estate planning, see Van der
Westhuizen 2002: 2-19.
S A Hyland, Lecturer, Centre for Financial Planning Law, University of the Free
State.
B S Smith, Lecturer, Department of Private Law, University of the Free State.
2
Journal for Estate Planning Law 2006(1)
Generally speaking, the requirements that need to be met for the
creation of a trust (as set out in
Administrators, Estate Richards v Nichol
)3
are relatively open-ended and bereft of excessive formalism, thus affording
the trust founder (also sometimes referred to as the “settlor”) the freedom
and flexibility to draft the trust instrument as he or she deems fit provided
that the
essentialia
as elucidated in the
Nichol
case are complied with.
Broadly speaking, the trust founder has the same freedom that a testator (in
the case of a testamentary trust) or a contracting party (in the case of a trust
inter vivos
) has when drafting the respective documents.4
The trust has been accepted into our legal system and has been
developed into a uniquely South African legal institution governed by both
statute and the common law.5The statute of principal application is the
Trust Property Control Act
57 of 1988, which has been described as an
“evolutionary, rather than a revolutionary, step in the development of the
South African trust.”6This much is evident from the South African Law
Commission’s 1987
Report on the review of the law of trusts
(which
included draft legislation that would eventually lead to the promulgation of
the 1987 Act):7
[Working Paper 3 entitled “Law of Trusts”] identified certain
problems but concluded that there was no need to review or codify
the law of trusts as a whole. It was recommended that it was at this
stage only necessary to provide more fully for control over trust
property in order to meet with certain problems.
3 1996 4 SA 253 C:258 E-F.These requirements (which Farlam J elucidated
after referring with approval to Honoré and Cameron 1992:96
et seq
) are: “(a)
the intention on the part of the [founder] to create a trust; (b) the expression by
him of that intention in a mode apt to create an obligation; (c) a definition with
reasonable certainty of the property subject to the trust; (d) the definition with
reasonable certainty of the trust object; and (e) a lawful trust object.”
4 It is, however, also important to remember that the trust founder is also
subjected to the same constraints faced by “ordinary” testators or contracting
parties. Examples include the provisions of the
Wills Act
7/1953 (in the case
of a testamentary trust) or the
Deeds Registries Act
47/1937 (in the case of a
trust
inter vivos
created by an antenuptial contract) - see Du Toit 2002:7-8 and
29-30.
5 See
Braun v Blann and Botha
1984 2 SA 850 A in relation to the development
of the testamentary trust and
Crookes v Watson
1956 1 SA 277 A in relation
to the development of the trust
inter vivos
. Also see in general Honoré 1996:
849-872; Corbett 1993: 262-270; Smith 2006:4-41; Honoré and Cameron
2002: 2;Olivier 1990: 1-22.
6 De Waal 2000: 472.
7 Paragraph 1.4.

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