What can go wrong with a trust deed
There are so many things that can go wrong with a trust deed that I devoted a whole chapter to this in my book “16 Steps to Wealth”
Here are a few of them –
- The founder makes a donation of R100 to form the trust, but that means the Trustees are obliged, in terms of the Trust Propert Control Act, to open a bank account and deposit the R100. Because this hardly ever happens, then, in my view, the trust was never created, even though it may be registered at the Master of the High Court. The donation should be something other than money, then the obligation falls away.
- The trustees are required to meet at least once a year to discuss what they will be doing with the trust income and assets and to keep minutes of the meetings. Because this hardly ever happens, then, in my view, the trust is a sham, because the trustees are ignoring their own trust deed. Again, imposing any unnecessary obligation on the trustees such as meetings, minutes, financial statements etc. risks their failure to comply and risks the trust being found to be a sham.
- Often the “First Trustees” may not be removed by a majority of the other trustees. That’s fine, as long as the definition of First Trustees does not include a representative of the firm that drew up the trust deed. You can’t get rid of them!
- The powers of the trustees allow them to make unsecured, interest free loans to anybody. That is contrary to the fact that they must always act for the benefit of beneficiaries.
- That one arises because the attorneys that draft (copy and paste) trust deeds love to pad them out with waffle. A favourite is to say that notwithstanding their normal power as trustees, the trustees have, but are not limited to, the following powers. Then follow about three pages of specific powers (including the one above), none of which is relevant, because they have absolute discretion anyway, provided they always act for the benefit of beneficiaries.
- Other padding includes repetition of aspects of the Trust Property Control Act. This is dangerous as well as being totally unnecessary, because unless the exact wording of the Act is used (and it rarely is), there could be a clonflict of meaning.
- Then the copy and paste artists occasionally produce a real whopper, like this one power that the trustees are given – Amalgamate this Trust with any other trust in which any beneficiary may have an interest in terms of this Trust subject to such terms and conditions as the trustees of this Trust and the Trustees (sic) of any other trust may agree upon in their sole discretion. According to this, the trustees of any other trust, not necessarily the other trust referred to in the first line, can have a say in whether the amalgamation may take place and on what terms.
So, do not just sign your new trust deed. Read it carefully, question it, inform yourself, read my book, meet with me at no charge to discuss it. Be very, very careful. The above examples are all taken from Trust Deeds drafted by attorneys or other professionals who claim to be qualified to do so.