Validity of inter vivos trusts

With reference to the definitions of "trust "and "trustee" in section 1, and the authorisation referred to in section 6 (1), of the Trust Property Control Act, 1988 (Act No. 57 of 1988), as amended, ("the Act"), W M van der Westhuizen, on page 21, under B6.2.1, of "Wills and Trusts" by R P Page and W M van der Westhuizen, published by Lexis Nexis Butterworths ("the publication"), states: "In the case of an inter vivos trust, the act to create a trust between the founder and the trustees, be it by means of a donation or any other form of obligation, is usually done prior to the authorisation under section 6 of the Trust Property Control Act, (see par B5.1 supra) which does not provide for retroactive ratification by anybody or any authority. This needs the urgent attention of the legislator especially in view of the development in the case law pertaining to acts by trustees prior to authorisation in terms of section 6(1) (……………………..)." my emphasis.

I hasten to make the observation that "the act to create a trust between the founder and the trustees" is neither an act of the founder in his or her capacity as trustee nor acts of trustees in their capacities as trustee(s) as contemplated in section 6 (1) of the Act. Actually, no person (including the founder of a trust) becomes a trustee before his or her appointment as such and the capacity to act as trustee only arises after, and is derived from, appointment as trustee.

On page 25, under B6.2.3.1, of the publication, it is stated that: "The anomaly created by the definition of "trustee" in section 1 of the Act (see par B6.2.1 supra) can cause most, if not all , inter vivos trusts in South Africa to be invalid, a result the legislature would never have intended, unless some form of retroactive authorisation by the Master of the first founding act between the founder and the trustees is strongly implied in the act (contra Cameron 177)."

Section 6 (1) of the Act provides that: "Any person whose appointment as trustee ………. comes into force …………….shall act in that capacity only if authorised thereto in writing by the Master." (my emphasis). Firstly, this sub-section expressly applies to a person whose appointment as trustee has come into force, that is, after a trust has been created - an accomplished fact. Secondly, the sub-section relates to an act of a trustee, which takes place subsequent to a person's appointment as trustee. Therefore, it is not envisaged that a person could act in his/her capacity as trustee before his/her appointment as a trustee.

According to section 1 of the Act, "'trust' means the arrangement through which the ownership in property of one person is …………made over or bequeathed - (a) to another person, the trustee……………" (my emphasis). According to section 1 of the Act, "'trustee' means any person (including the founder of a trust) who acts as trustee by virtue of an authorization under section 6 and includes any person whose appointment as trustee is already of force and effect after the commencement of this Act" (my emphasis). It is abundantly clear, therefore, that the words "person" and "founder" referred to in the latter definition refer to a person (including the founder of a trust) who acts as trustee after appointment as trustee, leaving untouched the act to create a trust between the founder and the trustees referred to in the first paragraph above. It is crucial to note that the words "(including the founder of a trust) in the definition of "trustee" are purely and only intended to make it clear that, if a founder of a trust is appointed, and acts in the capacity of, trustee, such founder is not exempt from section 6 (1) of the Act.

Further, it is implied in section 4 (1) of the Act that a person cannot assume control of trust property before such person's appointment as trustee. The said section 4 (1) of the Act reads: "Except …………….., a trustee whose appointment comes into force after the commencement of this Act, shall, before he assumes control of the trust property, ……………….., lodge with the Master the trust instrument in terms of which the trust property is to be administered or disposed of by him …………………"

On the basis of the afore-going, my view is that: (a) no anomaly is created by the definition of "trustee" in section 1 of the Act, (b) by virtue of its not being an act of a person in his/her capacity as trustee, the act to create a trust between the founder and the trustees does not require authorisation by a Master in terms of section 6 (1) of the Act, (c) the validity of inter vivos trusts in South Africa is not endangered and (d) no legislative intervention is necessary.

Thabo Nqhome
18 May 2009