Parties To A Trust And Role Players Responsibilities Explained

Written by Mari van der Walt

19 April 2023

Establishing a trust in South Africa can serve to protect assets for future generations, provide flexibility in terms of the administration and allocation of assets, and reduce liability for tax, transfer duty, and estate duty.

Significant expertise and a sound understanding of the different role players’ functions are required to properly navigate and apply trust law in South Africa. This article explores the different role players in a trust as well as their requirements, rights, and obligations.

What is a Trust?

A trust is a legal entity entered into between the founder, trustees, and beneficiaries that gives a third party the opportunity to hold assets on behalf of and for the benefit of the trust’s beneficiaries.

Who are the parties to a trust?

For the incorporation of a valid trust, the following three roles need to be fulfilled:

  • Founder;
  • Trustees;
  • Beneficiaries.

Who is the trust founder?

The founder of a trust is the party that establishes the trust, whether it be a natural person or a legal person, such as a business. The founder is responsible for commissioning the trust instrument, overseeing the inner workings of the trust, and donating the trust property, which will be regarded as trust assets.

The founder of an inter vivos trust (a trust created while the founder is still alive) shall be the donor, as the founder usually contributes the initial trust property through a donation made to the trust. The founder of a testamentary trust is the individual who has passed away and requested the creation of a trust in their last will and testament.

Who are the trustees of a trust?

A trustee holds, controls, and administers the trust assets donated to the trust by its founder and must be appointed as trustee by the Master of the High Court. The role fulfilled by the trustee is not for their own benefit but for the benefit of the trust beneficiaries or an impersonal trust object.

Can a trustee also be a beneficiary?

Yes, a trustee can be a beneficiary of the trust that they administer.

How many trustees are required for the incorporation of a valid trust?

The trust instrument is a guideline for the administration of trust assets set up by the founder, which will usually specify the minimum and maximum number of trustees for the trust. Generally, a trust may be properly established with only one trustee, and there is generally no limit to the number of trustees who may be appointed. Depending on the terms of the trust, the trustees may have different powers and duties, and their roles may be divided among them.

Are there requirements to be appointed as a trustee of a trust?

The following four conditions must be met for a trustee to take office and act in their capacity as a trustee:

  1. The trustee must possess the necessary competence to be a trustee: Even though there are no special requirements or qualifications set in law for trustees, it is advisable that the person have knowledge, skill, and expertise, either legal, commercial, or otherwise, to conduct the administration of the trust to which they are appointed.
  2. The trustee must be appointed as the trustee of a specific trust: A trustee can be appointed by the founder, the serving trustees, the trust beneficiaries, the Master of the High Court, or the High Court itself.
  3. The trustee must accept their appointment as such: A trustee will only hold office once they have accepted their appointment as trustee. Upon acceptance, all documentation confirming acceptance must be lodged with the Master of the High Court, who has the necessary jurisdiction.
  4. The trustee must be authorised in writing by the Master of the High Court to act in the capacity of a trustee: A trustee who has been validly appointed and has accepted such an appointment assumes the office of a trustee. A trustee may not perform any acts until they have received written authorisation from the Master of the High Court, which is usually in the form of a letter of authority.

What are the Rights of Trustees?

  • The right to remuneration: a trustee’s remuneration may be stipulated in the trust deed. If there is no provision for remuneration in the trust deed, a trustee is still entitled to receive reasonable remuneration for their services.
  • The right to representation in the event of a proposed removal: the trustee is entitled to make representations, which should be heard during a meeting that will be held to propose a resolution concerning their removal from office.

What Powers do Trustees have?

The wide powers of trustees are normally set out in the trust deed and are awarded to ensure that trustees properly administrate the trust. As the office of the trustees is fiduciary in nature, trustees must administrate the trust by exercising their powers objectively, independently, in good faith, and to the advantage of the trust’s beneficiaries. Trustees must also align their actions with the requirements and standards of their fiduciary office, which includes a trustee’s adherence to the core duties of proper trust administration. Examples of the powers trustees may have in terms of the trust assets include:

  • Buying and selling property
  • Distributing income or capital to beneficiaries
  • Opening or operating trust accounts or facilities
  • Appointing or firing professionals like financial advisors or contractors

Who are the trust beneficiaries?

A beneficiary is regarded as the party who benefits from the creation of a trust by the founder and from the administration of that trust by the trustee. There are two types of beneficiaries, namely:

  • Income beneficiaries: those who receive and benefit from the income or proceeds generated by the trustee’s administration of the trust assets, such as interest, dividends, or rent.
  • Capital beneficiaries: those who receive and benefit from the distribution of the trust assets; this usually occurs upon termination of the trust.

It is noteworthy to point out that the same beneficiaries can be the trust’s sole income and capital beneficiaries.

What are the rights of a trust beneficiary?

  • The beneficiaries have a personal right to proper trust administration: Each beneficiary also has the accompanying right to enforce the fiduciary duty of the trustee.
  • The beneficiaries have a personal right to receive the trust income and/or capital: Generally, a beneficiary has the right to receive the benefits that are provided in the trust agreement. The extent of such a right depends solely on the contents of the trust deed.

It is critical for all role players involved in a trust, including trustees, beneficiaries, and founders, to understand their rights and obligations to ensure the trust is run properly and to protect the interests of all parties involved. Additionally, all parties need to be aware of the various legal tools available to them to protect their interests and ensure that the trust is administered in accordance with the trust’s terms as well as the relevant law.

Burger Huyser Attorneys’ wills and estates specialists have the necessary experience and expertise to advise you on the best course of action when setting up a trust. Contact our expert trust lawyers to enquire about the incorporation of a trust tailored to your specific needs.

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE