court highlights pitfalls of trusts 
16 October 2007

Unfortunately there is no law regulating who can draft a trust and many are drafted for “one size to fit all” , with the result that conflicts and disagreements between trustees and beneficiaries arise and end in years of litigation, says Bob Williams, a tax and trust expert at the University of KwaZulu-Natal.

In one case, Williams said, the trustees administered the trust with only one end in view, namely to prolong the trust’s existence indefinitely to maximise the fees they charged as trustees. “Because their commission was linked to the capital value of the trust assets, the trustees obstinately resisted paying out trust income or capital to the beneficiaries."

After years of frustration, the beneficiaries had applied to the Cape High Court for the removal of the trustees. However, that case has yet to come to court.

The present judgment concerned a preliminary skirmish, in which the trustees asked the court to order that their legal costs in defending themselves from removal as trustees be paid by the trust.

The court ruled against the trustees, holding that they must fund those legal expenses out of their own pockets, and that if the trustees successfully defended themselves from removal in the main case, then they could claim reimbursement from the trust.

“One of the important lessons to be learnt from this case is that the person who drafts a trust deed must foresee the possibility of all kinds of irregularities being committed during the span of the trust, and also the possibility of conflicts and disagreements between trustees and beneficiaries ,” Williams said.

Sanchia Temkin, www.businessday.co.za