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Partnerships & Trusts > Lawfulness of a Trust: Shams & Alter-Egos > Flashcards

Lawfulness of a Trust: Shams & Alter-Egos Flashcards

1
Q

What is section 13?

A

Power of a court to vary trust provisions.

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2
Q

What does section 13 hold?

A

Court can vary trust provisions if a trust instrument contains any provision which brings about consequences which, in the opinion of the court, the founder of a trust did not contemplate or foresee and which:
1. hamper the achievement of the objects of the founder; or
2. prejudice the interests of beneficiaries; or
3. are in conflict with the public interest.

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3
Q

What can the court do, on application by a trustee or interested person?

A
  1. delete or vary any provision or make any order which the court deems just,
  2. including an order whereby particular trust property is substituted for particular other property,
  3. or an order terminating the trust.
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4
Q

Which case deals with circumventing a law restricting property ownership in a certain area of law?

A

J.S NO v P.N. S Familie Trust

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5
Q

What did the court hold in J.S NO v P.N. S Familie Trust?

A

To authorise an alteration of trust provisions, there must be unforeseen consequences as perceived by the founder and these circumstances must align with the stipulations outlined in section 12(a)-(c)

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6
Q

What is a sham trust?

A

Where the trust form does not reflect the underlying reality, and the trust is therefore simply a facade to hide something different .

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7
Q

What are the characteristics and indicators of a sham trust?

A
  1. Lack of genune intention
  2. Pretence
  3. Control
  4. Lack of beneficiary interest
  5. Concealment of true transactions.
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8
Q

What is the effect of a sham trust?

A
  1. Void ab initio
  2. Concerned parties may face potential invalidation of trust, exposure to legal claims, and the risk of criminal liability if fraudulent conduct is involved.
  3. Beneficiaries may be denied their expected benefits.
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9
Q

What are the legal tests to determine a sham trust?

A
  1. Beneficial ownership
  2. Genuine intention
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10
Q

What is an alter-ego trust?

A

An alter-ego trust is a trust arrangement in which the legal separation between the trust and the individual (usually the settlor or beneficiary) is minimal or non-existent.

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11
Q

How does an alter-ego trust differ from a sham trust?

A

Founder does not relinquish control of the trust assets to the trustee and continue to use the assets if personally owned.

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12
Q

What are the key characteristics and indicators of alter-ego trusts?

A
  1. Limited separation
  2. Beneficiary and settlor overlap
  3. Lack of independent trustees
  4. Informal arrangements
  5. No genuine intention
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13
Q

What is the impact of an alter-ego trust on legal separation?

A

Diminishes the legal separation between the trust and founder and may erode the distinction to the extent that the trust is not recognize as a separate legal entity.

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14
Q

What are the consequences of an alter-ego trust on a settlor/beneficiary?

A
  1. The assets held in the trust may not enjoy the same level of protection from creditors.
  2. Tax authorities may disregard the trust, impacting tax liabilities.
  3. Courts may invalidate alter-ego trusts, exposing the individual to legal claims.
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15
Q

What are the effects of an alter-ego trust?

A
  1. Not void ab initio
  2. Will be disregarded when considering certain matters
  3. Assets held in trust could be considered personally owned by settlor
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16
Q

What are the cases for alter-ego?

A
  1. Land & Agricultural Bank v Parker
  2. Badenhorst v Badenhorst
  3. Brunette v Brunette
  4. Rees v Harris
17
Q

What is a business trust?

A

A business trust is a type of legal entity formed to hold and manage assets for business purposes, where trustees administer the trust on behalf of beneficiaries.

18
Q

Is there a common law power for trustees to run a business?

A

No, so the trust deed/will must explicitly confer that power on them, and should also explicitly confer the power to take incidental actions.

19
Q

What are the similarities of a business trust and a partnership?

A
  1. No separate juristoc personality
  2. No statutory duty to file accounts
  3. No statutory restrictions on qualifications of trustees
  4. Provided trustees not acting in breach of trust, liability is limtied to the extent of the trust assets
  5. Continuity
  6. Unlimited number of trustees
20
Q

What are the unique features of a business trust?

A
  1. Standard of care imposed by section 9(1)
  2. Partners run business for own benefit
  3. Sources of capital are very different
  4. Capital for business trust is supplied by founder
21
Q

Can a business trust sue or be suedas a separate entity from trustees?

A

Yes ito rule 14 of UCR and Cupido v Kings Lodge Hotel

22
Q

What are the advantages of a business trust?

A
  1. Not subject to uncertainty created by company law and regulation
  2. No estate duty and easier administration
  3. Trust’s business is unaffected by the insolvency of a beneficiary
  4. Not held liable for trustee’s personal debts
  5. Beneficiaries not liable for losses incurred by trustees while running business trust
  6. Discretion bc no public filling of accounts=no public access to list of beneficiaries
  7. International recognition.
23
Q

What are the disadvantages of a business trust?

A
  1. No loan unless personal guarantee from trustees or beneficiaries
  2. Difficulty raising equity capital
  3. No ownership=no asset to pledge for a loan
24
Q

What is a unit trust?

A

A unit trust, (also known as a mutual fund/hedge fund in some regions) is a type of collective investment vehicle that pools together money from many investors to invest in a diversified portfolio of stocks, bonds, or other securities.

25
Q

What are the actions for breach of trust?

A
  1. Damages
  2. Removal of trustee
  3. Interdict
  4. Specific performance
  5. Accounting
  6. Surchage
  7. Constructive trust
  8. Rescission
  9. Declaratory relief
  10. ADR
  11. Criminal action

Partnerships & Trusts (8 decks)

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