Trusts

The first thing to determine when looking at a deed of trust is whether or not it constitutes a valid trust. Once you have established that the trust is valid, you will need to look at the powers given to the trustees in order to establish what they are authorised to do and what the requirements are.

The definition of a trust: a trust exists when the founder hands over assets to the trustee in his capacity as such, which assets are to be administered by the trustee for the benefit of a beneficiary.

Validity

The requirements of a trust are as follows:  The founder must have the intention to create a trust  An obligation must be placed on the trustees to hold and administer the trust assets on behalf of the beneficiaries, which obligation must be accepted by the trustees  The trust assets and trust beneficiaries must be defined with reasonable certainty  The object of the trust must be defined with reasonable certainty and the object must be lawful  Provision has to be made for termination of the trust and for division of the trust capital on termination  As far as trustees and trust beneficiaries are concerned, the following has to be kept in mind :  The founder of a trust may also be a trustee or a beneficiary of the trust or both, but he may not be the only trustee (he may only be the only beneficiary)  A trustee may also be a beneficiary, even the only beneficiary, provided that when he is the only trustee he may not also be the only beneficiary.  The above two points sound confusing but make sense when one takes into consideration that a trust is a contract between the founder and the trustee in terms of which the trustee is to administer the trust fund for the benefit of the beneficiaries. A person cannot contract with himself therefore the founder cannot be the only trustee. The trustee cannot be the only beneficiary because a person is not administering funds for the benefit of someone else when he is the sole beneficiary.  The selection of beneficiaries in a discretionary trust may be left to the trustees, but the class or group from which they are to be selected has to be determined by the founder.  

The Powers of Trustees:

A trustee is only allowed to do that which he is specifically or by implication authorised to do in terms of the deed of trust. Therefore, if a trust wants to buy immovable property and have a bond registered over the property as security for the loan it obtained in order to buy the property, the trustee's powers must include the following :  Authority to buy immovable property in the name of the trust  Authority to borrow money for the purpose of acquiring immovable property  Authority to encumber trust assets as security for obligation of the trust  The power to do the above has to be specifically given in the trust deed or has to appear by necessary implication

The trust as surety:

Difficulties can arise is when the founder of a trust or a trustee in his personal capacity buys property and wants the trust to act as surety for his / her loan obligations. The situation regarding the trust acting as surety in such a situation is as follows: even when the trustees are authorised to act as sureties on behalf of the trust for the obligations of others, no matter how wide such clause is worded, it does not constitute sufficient authority to empower them to act as surety for the personal obligations of the founder or the trustees. To empower them to do so, this must be specifically authorised. Authority to act as surety for the obligations of others is therefore not enough. The trust deed must specifically provide for the fact that the trust may act as surety for the trustees or founder, whatever the case may be. 

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