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Partnerships & Trusts > Trusts > Flashcards

Trusts Flashcards

1
Q

What is the statutory definition of a trust ito the Trust Property Control Act?

A

The arrangement through which the ownership in the property of one person is by virtue of a trust instrument made over or bequeathed to the:
1. Trustee in whole or in part
2. Beneficiaries designated in the trust instrument, which property is placed udner the control of another person, the trustee

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2
Q

What is the wide definition of a trust?

A

A trust exists whenever someone is bound to hold and administer property on behalf of another, and not for the benefit of the holder property and encompasses a broad range of arrangements that involve the administration of proeprty on behalf of another person or entity, not for the benefit of the property holder

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3
Q

What is the narrow definition of a trust?

A

Where the founder has handed over or is bound to hand over property to the trustee which the trustee is obliged to administer for the benefit of some person other than the trustee (the beneficiary) or for some impersonal object.

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4
Q

What are the three essential elements of a trust?

A
  1. Intention
  2. Trust Property
  3. Beneficiaries
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5
Q

What are the three main ways in which trusts come about?

A
  1. Trusts inter vivos
  2. Testamentary trusts
  3. Trusts as a result of insolvency
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6
Q

What is an inter vivos trust?

A

Trusts that are created during the lifetime of the settlor.

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7
Q

What are the key features of inter vivos trusts?

A
  1. Living settlor
  2. Immediate effect
  3. Flexible
  4. Revocable or irrevocable
  5. Avoidance of probate
  6. Privacy
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8
Q

What is a revocable trust?

A

Trusts that allow the settlor to retain the right to modify or revoke the trust during their lifetime.

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9
Q

What is an irrevocable trust?

A

Trusts that cannot be altered or revoked without the consent of the beneficiaries or under specific circumstances.

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10
Q

What is a testamentary trust?

A

A trust established through a person’s last will and testament and comes into effect upon the testator’s death.

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11
Q

What are the key features of a testamentary trust?

A
  1. Creation through a will
  2. Effective upon death
  3. Flexibility in terms
  4. Revocable until death
  5. Probate
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12
Q

What is a trust as a result of insolvency?

A

A trust created as a result of insolvency refers to a situation where a person’s or a company’s estate is declared insolvent and is subsequently placed under the control of a trustee.

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13
Q

What are the subcategories of the inter vivos and the testamentary trusts?

A
  1. Ordinary trust
  2. Bewind trust
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14
Q

What is an ordinary trust?

A

A trust where the trustees have the responsibility of managing the trust assets and distributing income or capital to the beneficiaries as per the trust deed.

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15
Q

What is a bewind trust?

A

A form of trust management where a trustee has the legal responsibility to administer the assets of the trust on behalf of a beneficiary who does not have the full legal capacity to manage those assets independently.

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16
Q

What is an income beneficiary?

A

Beneficiaries entitled to receive income generated from the trust assets during the term of the trust.

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17
Q

What is a capital beneficiary?

A

Beneficiaries who have rights to the principal or capital of the trust, usually after certain conditions are met, such as the expiration of the trust term or the death of the income beneficiaries.

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18
Q

What are the special features of trusts in SA?

A

The settlor must have either:
1. Have handed over control of the trust property to the trustee
2. Have bound himself or some other person to hand over control;
3. Be bound in some other way to hand over control

19
Q

What are the ways in which transfer of ownership can take place if the founder is the owner of the property that is intended to be transferred to the trustee?

A
  1. Complete transfer of ownership
  2. Partial transfer of ownership
  3. Retaining ownership with beneficial interest
20
Q

What is the retention of ownership with beneficial interest?

A

Where the trustee holds the property for the benefit of specified beneficiaries.

21
Q

How does transfer of ownership pass in a bewind trust?

A

Ownership must be transferred to the beneficiary, with control transferred to the trustee.

22
Q

What are the duties of a trustee?

A
  1. Trustee must hold and administer the trust property for the benefit of some person or object other than himself
  2. May be a beneficiary but not the sole beneficiary
  3. May be held to account for the exercise of his duties
  4. Must be independent of both the founder and the beneficiary
  5. Act as a fiduciary and carry out duties with a high level of independence, loyalty and impartiality to all parties involved
23
Q

What are the key aspects of the trustee’s independence?

A
  1. Fiduciary duty
  2. Discretionary powers
  3. Legal obligations
  4. No self-dealing
  5. No undue influence
  6. Record keeping and reporting
24
Q

Which case deals with the legal status of a trust?

A

Raath v Nel.

25
Q

What does Raath v Nel say about the legal status of trusts?

A

A trust estate, comprising an accumulation of assets and liabilities, is a separate entity, albeit bereft of legal personality. The core concept of a trust is the separation of ownership or control from enjoyment.

26
Q

What are the essential elements in the formation of a trust?

A
  1. Intention
  2. Obligation
  3. Property
  4. Object/beneficiaries
  5. Lawfulness
27
Q

What is the requirement of intention?

A

The settlor’s clear and unequivocal intention to create a trust relationship and transfer assets to a trustee for the benefit of specific beneficiaries.

28
Q

What is the significance of the intention requirement?

A
  1. It differentiates between ordinary transactions and the establishment of a trust arrangement.
  2. Establishes settlor’s purpose to create a fiduciary relationship wherein assets are held and managed for the benefit of others
  3. Provides foundation for the separation of legal and beneficial ownership.
29
Q

What does the case of Coetzee NO v Universiteit Stellenbosch deal with?

A

The inference of a trust when the word ‘trust’ is not used.

30
Q

What did the court bold in Coetzee v NO v Universiteit Stellenbosch?

A

If the actions and intentions of the parties demonstrate an intention to hold and manage the property for the benefit of others (the beneficiaries), a trust relationship can be implied, and the property will be treated as held in trust.

31
Q

What is the requirement of obligation?

A

Settlor to transfer the assets to the trustee and on the trustee to administer the assets.

32
Q

What is the significance of the requirement of obligation?

A
  1. There is a legally binding obligation on the trustee to manage the trust property for the benefit of the beneficiaries
  2. Creates the fiduciary duty that underpin the trust relationship and distinguishes it from other types of arrangement.
33
Q

What are the key aspects to consider regarding the requirement of obligation in the formation of a trust?

A
  1. Fiduciary duty
  2. Binding obligation
  3. Beneficiary rights
  4. Certainty of obligation
  5. Certainty of subject matter
  6. Legal recognition
  7. Change of ownership
  8. Trustee’s fiduciary duty
34
Q

What is the requirement of object/beneficiaries?

A

Must be certain, clear and ascertainable or reasonably identifiable.

35
Q

What are the key aspects regarding the requirement of object/beneficiaries in the formation of a trust?

A
  1. Certainty of beneficiaries
  2. Purpose and intent
  3. Beneficiary rights
  4. Flexibility
  5. Enforceability
  6. Changes and succession
  7. Trustee’s obligations
  8. Public policy
36
Q

What is the principle of fuzziness?

A

The principle that recognises the reality that circumstances may arise where the class of beneficiaries could be somewhat uncertain or subject to change.

37
Q

Are unilateral declarations of trust, where an individual declares themselves as a trustee while retaining beneficial ownership valid?

A

No (Crookes NO v Watson)

38
Q

What is the difference between legal and beneficial ownership?

A
  1. Trustee holds legal ownership of the trust property but does not hold the property for their own benefit but is bound by a fiduciary duty to manage the trust property in accordance with the terms of the trust deed and in the best interests of the beneficiaries.
  2. Beneficial ownership of the trust property belongs to the beneficiaries in that they have the right to benefit from the trust asset, the extent of these benefits depends on the terms of the trust deed.
39
Q

What are the characteristics of a trust?

A
  1. Separate legal entity
  2. Trust deed
  3. Fiduciary duty
  4. Beneficiaries
40
Q

What does the fiduciary duty of a trustee comprise of?

A
  1. Act in the best interests of the beneficiaries
  2. Manage the trust assets in accordance with the trust deed
41
Q

What are the requirements for establishing a trust?

A
  1. Trust deed
  2. Intention
  3. Transfer of property
  4. Trustee
  5. Registration in the cases of a testamentary trust or a trust created for minors.
42
Q

What are the advantages of a trust?

A
  1. Asset protection
  2. Estate planning
  3. Tax efficiency
  4. Continuity
  5. Flexibility
43
Q

What are the disadvantages of a trust?

A
  1. Costs
  2. Complexity
  3. Loss of control
  4. Taxation
  5. Regulatory compliance

Partnerships & Trusts (8 decks)

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