I have been nominated as the financial officer of a testamentary trust of a friend’s wife. They shared two boys aged eight and 10. Her will stipulated her sons would be the sole beneficiaries, even though she was married, but the husband would be the sole trustee.
The estate is insolvent as the balance owing on her vehicle is more than what it seems to be worth, and there are a couple of other debts still to be settled. Thankfully the big loans and overdrafts were covered by insurance. However, she had life policies to the value of R12 million that were both updated a couple of months before she died of a brain haemorrhage, and her sons were the sole beneficiaries of those too. They have been put into a registered testamentary trust and I am keeping control of all expenses coming from there.
Her car had a loan and the amount owing on it is more than it’s worth which does not help the insolvent estate. I have been researching and I cannot find anywhere that a testamentary trust can purchase a vehicle for the guardian to drive. The guardian does have his own car.
The article I read said only immovable property can be transferred into the testamentary trust name, not a vehicle as the minors cannot drive. I need a clear indication of what is allowed to be claimed from a testamentary trust in this case, because none of the funds in the trust came from the estate, only life policies.
The guardian is the sole trustee, and my feeling is all the money is not being spent in the beneficiaries’ best interest. Please can I get help on this?
Thank you very much for your question and for raising these concerns with us.
In order to answer your question, I will first start by explaining what makes up a testamentary trust, the purpose of the trust, who are the role players that make up the trust, and what can be bequeathed to the trust.
A testamentary trust, or a mortis causa trust, is created via a stipulation in the testatrix’s will and comes into existence upon her death. The primary purpose of a testamentary trust is for the testatrix to protect assets that they intend to bequeath to their minor beneficiaries, in this case to her sons.
Unlike a living trust, which is created by the trust founder through a trust deed, a testamentary trust is set up via the testatrix’s will – meaning that the will becomes the trust instrument, and the testatrix is known as the trust founder. The testatrix will include a special paragraph in her will setting out the purpose and beneficiaries of the trust.
The wording of the will must clearly indicate the intention of the testatrix to create a trust, who the beneficiaries are, and which assets should be bequeathed to the trust.
In addition, the will must set out the terms and conditions that apply to the trust, and nominate trustees to manage the assets of the trust. An important factor to consider when setting up a testamentary trust is that, if the will is found to be invalid, the testamentary trust will not come into existence, making it essential for those drafting a will to seek professional advice and expertise.
Trustees have a fiduciary duty to manage the trust assets in the interests of the beneficiaries and in line with the terms and conditions set out in the will. It is essential to nominate trustees who have the knowledge and skill to manage the assets of the trust, and who you believe will do so in the best interests of your minor beneficiaries. After the passing of the testatrix, it is the duty of the nominated trustees to apply to the Master of the High Court for what is known as Letters of Authority. The children’s appointed guardian does not need to be a trustee (in this case the guardian), and it is advisable that the guardian and trustees are separate to keep checks and balances.
All trusts are governed by the Trust Property Control Act and the trustees are required to ensure that they comply with this legislation. It is important to note that the legal principles that apply to a living trust, which takes the form of a contract between the trust founder, trustees and the beneficiaries, is based on the law of contract, whereas the legal principles relating to the law of testation apply to a testamentary trust. That said, all trusts are considered legal constructs created to hold assets for the benefit of others.
To answer your question, the will of the deceased determines the assets that are left to the testamentary trust as well as how the assets can be dealt with in the trust. The purpose of the trust and the powers given to the trustees in the will can be wide-ranging and therefore it is not possible to give a definitive answer in terms of which assets can be held in the trust.
The will, and more specifically the clauses dealing with the testamentary trust, ultimately will determine this. For example, if the trust must be for the sole benefit of the minor and must provide for their maintenance and education, the trustees must take all such action to give effect to this purpose. If circumstances are such that a car needs to be purchased to give effect to the purpose, and the powers given to the trustees are wide-ranging enough, then it is possible for this to happen.
Keep in mind that, as stated above, the trustees have a fiduciary duty to act in the best interest of the beneficiaries.
The Trust Property Control Act requires that trust assets under the control of a trustee be kept separate from the personal assets of that trustee. The trustee has a duty to keep those trust assets separate. For example, a trustee cannot hold trust money in their own account. The trust account must be held in the name of the trust and the trustee must make every effort to ensure that those trust assets do not become mixed with the trustee’s personal assets.
Should you find the trustee not adhering to his fiduciary duty, an appropriate course of action is to file a complaint against the trustee with the Master’s Office. The beneficiary of a trust also has the right to file a claim against a trustee who has breached fiduciary duty.