Are Shelf Trusts Valid?
By Chanelle Botha
Trust Consultant: Delgado Velosa Kenworthy & Associates
In terms of South African trust law, the essentials for the formation of a valid trust is that the trust object must be sufficiently certain and lawful. The object of the trust
can be personal or impersonal and may consist for the benefit of one or more names or ascertainable persons or classes of persons, including juristic entities or other trusts.
The intention of the Founder must be evident and expressed in such a way that it creates an obligation. The beneficiaries for whose benefit the trust is being created must
therefore be ascertainable, and if the object is impersonal, same must be clearly defined. A trust is therefore formed for a specific object or purpose.
Trust provisions of the trust deed can be varied or amended in appropriate circumstances, subject to the provisions of the trust deed and the Trust Property Control Act.
Amendments to the board of trustees are not essential to the existence of the trust, but the substitution of beneficiaries must be in accordance with the object of the trust
(Honore’s South African Law of Trusts 5th Edition, paragraph 109)
The question that does arise at this point is what the effect would be if the envisaged object of the trust changes due to such amendments? Is a new trust created?
In The T Trust v CSARS, case 11286, 2007, the court, inter alia, had to consider whether an arrangement concluded between parties whereby the trustees and beneficiaries of an
existing trust were replaced by new incoming trustees and beneficiaries, constituted the creation of a new trust, legally separate and distinct from the original trust. The original
registered trust, a discretionary trust, was registered with the principal object to look after the welfare of nominated income and capital beneficiaries. The outgoing trustees and
beneficiaries agreed that upon receipt of certain cash considerations and settlement of loan accounts to resign as trustees and be removed as beneficiaries in favour of the new
incoming trustees and beneficiaries. It was the opinion of the court that on the facts a new trust was in fact created especially in view of the fact that the object and purpose
of the trust as envisaged by the Founder had come to an end. In casu, the beneficiaries in effect varied the trust. They used the trust property and set up a new trust that differed
from the old. The finding of the court was that the principal object and purpose of the original trust as envisaged by the Founder had been terminated in that a different ascertainable
object and purpose to the original trust had been affected.
"Shelf trusts" are generic trusts which are created by trust companies for the purpose of "selling" them to clients. In so doing, they amend the existing parties (save for the
Founder as that can not be amended). In this way the trust object has changed and in effect the trust fails the object of the Founder, rendering the original trust being terminated
and a new trust created.
It follows, therefore, that should you attempt to "sell" a dormant trust to another, the same consequences arise.