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

• Pages: 1-22
• Date: 01 January 2006
• Author: S.A. Hyland,B.S. Smith
• Published date: 01 January 2006
• DOI: 10.10520/EJC51199

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 wsletters/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.