Although the purchase of immovable property in the name of a trust may have significant estate planning benefits as well as providing for the protection of assets in the event of insolvency, there are a great number of formal requirements which need to be met in order to ensure that the agreement for the disposal of immovable property to or from a trust is valid and binding on the parties. Failure to comply with the following formal requirements may render the transaction void and unenforceable:
- THE TRUST MUST BE FORMED
A trust must already be in existence at the time that the agreement for the acquisition or disposal of immovable property is entered into by the parties. Unlike a close corporation or a company, an individual cannot enter into the transaction agreement on behalf of a trust “to be formed”. A contract may be ratified the members/directors of a close corporation/company as the case may be, subsequent to signature thereof. Therefore immovable property can be purchased or otherwise acquired by a company or close corporation yet to be formed. In contrast, if the trust is not yet formed, the contract cannot be ratified and is void ab initio and therefore unenforceable.
- LETTERS OF AUTHORITY MUST BE ISSUED BY THE MASTER APPOINTING THE TRUSTEES
The trustees are unable to act on behalf of the trust until they are formally appointed as trustees when the Master of the High Court issues the Letters of Authority. Section 6 (1) of the Trust Property Control Act 57 of 1988 stipulates that any person who has been appointed to act as a trustee of a trust after 1988 shall act in that capacity only if authorised to do so in writing by the Master. It is also important to remember that the minimum number of trustees as stipulated in the trust deed must be appointed by the Master in the Letters of Authority, and if any trustee has died or is otherwise disqualified to act on behalf of the trust, the Letters of Authority must be amended by the Master to reflect the succeeding trustees before the trust can validly transact or before that trustee may transact on behalf of the trust.
- THE TRUST DEED MUST ALLOW THE TRUSTEES THE POWER TO BUY SELL MORTGAGE IMMOVABLE PROPERTY
Any trustee who enters into a transaction not sanctioned by the trust instrument will be acting ultra vires and the contract will be null and void. For an inter vires trust, the powers of the trustees are limited to those specifically provided for in the trust deed. In the case of a testamentary trust, the will must authorise the trustee in respect of their powers.
- A VALID RESOLUTION MUST BE PASSED
The trust resolution must be valid in that it complies with the provisions of the trust instrument as well as the law.
Section 2 (1) of the Alienation of Land Act 68 of 1981 states that:
“No alienation of land after the commencement of this section shall be of any force and effect unless it is contained in a deed of alienation signed by the parties thereto or their agents acting on their written authority.”
The Alienation of Land Act therefore requires the resolution of the trustees to be in writing. In addition, as the actions of trustees cannot be ratified, the resolution must be passed prior to the signature of the agreement by the trustee/s.
The trust deed or will should specify how decisions of the trust are to be taken as regards the number of trustees required to pass the resolution ie. whether a majority or unanimous vote is required. The resolution must therefore be signed by the requisite number of trustees or alternately all the trustees must sign the contract itself. A deed of sale signed by one trustee purporting to act on behalf of the trust but without a valid resolution authorising him to do so will be void ab initio. Trustees must act jointly. See Thorpe No v Trittenwein (2008) SCA 30.
The resolution must also nominate the trustee/s as the individual/s who is/are authorised to transact on behalf of the trust in respect of that particular transaction. Only trustees so authorised may sign the transaction agreement, any addenda thereto, and any transfer/bond documentation related to the authorised business.