The founder as a trustee and co-trustees

article by Shiniade Kenworthy

Although it is important that you are the Founder (Settlor) of your own Trust, you cannot create a trust where the Founder and the sole Trustee are one and the same.

In the first instance, in terms of contractual law one cannot contract with yourself. Secondly, by the very definition of “trust” in Section 1 of the Trust Property Control Act, No 57 of 1988, this is not possible. The definition of trust states “ ..the arrangement through which ownership in property of one person is by virtue of a trust instrument made over or bequeathed  (a) to another person, the trustee…”. Thus the Founder cannot set up a trust by transferring assets to himself! Should it arise, however, that subsequent to the trust having been created, the Founder finds himself as the sole Trustee, this does not nullify the Trust Deed. Keep in mind, however, if he is one of the beneficiaries then in order to prevent issues of control he must appoint a second independent trustee.

When, however, you appoint this second trustee do not think that you can retain control over this person by retaining the right, as Founder to discharge this trustee. This was addressed by Van Heever, J in Crookes, NO and another vs Watson and others [1956] 1 ALL SA 227 (A) @ 299 where he stated when referring to the trust deed in question “  If a co-trustee proves obdurate or obstinate, he [the settlor] can promptly discharge him and appoint another….Shorn of verbiage the trust deed amounts to nothing more than this: it is a contract between the settlor on the one side and himself and his by no means independent nominee in the other, pursuant to which he takes his money from one pocket, places it in the other and proceeds to dictate laws unto himself…” Essentially what the court is saying is that by retaining the right to remove the other trustee or trustees, the Founder, as trustee retains control of the trust as if any of the other trustees disagrees with any of his decisions he can simply remove him!

It is therefore very important to carefully consider the role the Founder plays and what powers the Founder is possessed with. It follows therefore that when addressing the Founder and his role as such or as Trustee the Trust must be correctly created and the contents of the deed properly drafted.