Definition Essay about Trust

Introduction

Defining a trust can be a difficult task due to its broad and flexible concept yet one may be able to recognize one. The definition of a trust is in two ways, the general way defines a trust to be an arrangement under which one person is bound to hold or administer property on behalf of another person or for an impersonal object and not for his own benefit. The second way to define trust is in accordance with the Trust Property Control Act 57 of 1988, Trust means the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed (a) to another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument;

b) to the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument, But does not include the case where the property of another is to be administered by any person as executor, tutor or curator in terms of the provisions of the Administration of Estate Act 66 of 1965.

With this definition two categories of trust are created, the first one is the ownership trust which stems from paragraph (a) of the definition of a trust in accordance with the Property Control Act 57 1998. Here the ownership of property vests with the trustee however in exercising of his duties or powers must be to the benefit of the trust and beneficiary and not of personal objectives. The second type of trust is the bewind trust, beneficiaries have ownership of trust assets however control and powers of disposal of assets vest with the trustee, meaning that a trust cannot exist independently, as it has never been referred to as an entity due to the reason that its assets and liabilities vest in the trustee.

Facts

In this case, the parties had been married and divorced from each other on no less than three occasions. When the final divorce order was in 2011, the respondent’s patrimonial claim was, by an agreement that was made an order of the court, postponed ‘sine die’. The court (SCA) made a finding that the exclusion clause contained in the parties’ antenuptial contract did not exclude the assets of three trusts (the Shajo Trust, the Campmark Business Trust, and the RMF Trust) for accrual purposes. As such, the big question to be dealt with is ‘whether these assets legitimately form part of the assets of these trusts and do not form part of the appellant’s estate, for purposes of the accrual system.

Legal issue

In critically analyzing REM v VM 2017 (3) SA 371 (SCA) the legal issue that arises is whether a trust and trust assets are to be considered in a marriage out of community of property with the accrual system. Part of this question is reaching a conclusion with regard to whether it is lawful for a spouse in a marriage out of the community of property with the accrual system to shield assets using a trust’s own separate legal personality in such a manner that it amounts to an unconscionable abuse of the trust form.

Rule

The Matrimonial Property Act 88 of 1994 regulates marriage regimes in the Republic of South Africa. In the REM v VM the marriage out of community of property with the accrual system was opted by the married couple. In executing their marriage out of property parties signed an antenuptial contract which basically serves the purpose of parties seeking not to have a joint estate but a separate estate meaning each party remains in control of their assets and they do not form party of the marriage. However parties are married out of community with the accrual system, the accrual system is of the notion that if parties contribute to the growth of each other estate whilst married, parties will then share their estates equally amongst each other despite being a separation of estates.

What this basically does is put parties in a position of being married in a community of property in regard to sharing their estate equally despite the antenuptial contract being signed. If parties were married out of a community of property without the accrual system this would mean that their estates stay separate and there is no sharing of estate or anything amongst each other.

Part of being a trustee is having the duty of controlling trust property and in doing so the trust property must be kept separate from the trustee’s personal estate. In layman's terms, trust has its own personality. However, hiding assets in a trust inappropriately evades the law with the utilization of the trust's own personality which amounts to a trustee violating not only his/ her duties but committing Fraud and being dishonest/ acting in bad faith. The Badenhorst v Badenhorst case is of paramount importance when tackling this aspect of the question.

Application

In regard to the Matrimonial Property Act Principles in terms of the marriage out of community of property with an accrual system applies, it states that contribution towards estates and assets acquired during the marriage will form part of the Accrual system in cases of divorce and in matters when the estate has to be duly divided. The court applied these principles as well and we shall illustrate through its findings. The appellant’s claims are as follows;

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Place Order

• claim A was for the provision by the appellant of fixed property to the value of R300 000 escalated at the rate of 10 percent per annum. This was based upon a provision in the ANC that in the event of an extramarital affair of the appellant being the cause of a divorce, the respondent was to hand the asset to the appellant.
• Claims B, E, and F were ordered declaring that the assets in Shajo trust, RMF trust, and Cap Mark business trust form part of the appellant’s estate and should be part of accrual as they were not excluded in the antenuptial contract. The trust was altering egos whilst, in reality, they belonged to the appellant.
• Claim C was to set aside the transfer of 50% interest of Micellar to the Shajo trust due to it being a fraud.

Claim D's contribution made to the RMF trust is part of the applicant's estate therefore it should be deemed as accrual

The respondent’s responses to the appellant’s claims are as follows;

• Claim A, the appellant failed to prove that extramarital affair was the reason for divorce among parties
• claims B, E, F, the respondent is of the view that these assets should be excluded from the accrual due to clause 6 in the estate, also a matter to consider is that the appellant did not allege that these trusts are shams, therefore, the allegations of fraudulent claims without evidence cannot carry any weight in law as a result the assets are not of the respondent’s estate but trust.
• in respect to claims of fraudulent behavior, the transfer of 50% of micellar interest into Shajo trust was to defeat the accrual system the respondent denied allegations
• claim d, the appellant alleged that when properly interpreted the contribution in the Antenuptial contract, implied a positive act that benefits the contributor without there being an obligation to do so, therefore assets should not be accrued in accordance with the interpretation.

The Court's findings are as follows;

The court in regards to claim A found that the extramarital affair led to the breakdown of the marriage and given the clause and obligations in place respondent would receive R1 144 004

The Court found that Claims B and F were to be included in the accrual in terms of them not being excluded in the Antenuptial contract. Therefore, the Shajo trust and Cape Mark test were altering egos because the appellant hand-managed the trust improperly, and assets were taken into account when determining the estate of the appellant.

Claims E in respect of RMF trust the court held that the appellant’s beneficial interest in this trust was to be excluded from the accrual due to the Antenuptial contract.

Claim C fraud judgment was passed due to inadequate evidence plus the conclusion reached on claim B

Claim d It held that the use of the word „contribution‟ in the ANC meant any asset that accumulated in the RMF Trust after the marriage, irrespective of how it was accumulated. It found that the total value of contributions made to the RMF Trust was R4 087 335.40. The respondent was entitled to 75 percent of this amount R3 065 501.58.

Conclusion

Thus in essence, the court was duly and rightfully correct in the decision that it reached as well as the manner in which the principles were applied in regard to both the Shajo trust and the Cape Mark trust in terms of which, they could be calculated due to them being part of the appellant’s estate, as he had them during the course of the marriage. The REM case should be highly admired for creating certainty in regard to trust assets and marriages involving the accrual system as well as for addressing any wrongful approach in regard to legal standing. The judgment of this case makes a distinct clarification that the asset values of an ‘alter ego’ trust may now be taken into account in marriages that are subject to the accrual system.