Settlor control and trustee liability: an analysis of English and offshore trust law with indicators for the development of South African trust law

Bruwer, Elizabeth (2018-12)

Thesis (LLD)--Stellenbosch University, 2018.

Thesis

ENGLISH ABSTRACT : The trust, a creature of English law that has found its way into many other legal systems, is well known as a useful succession and tax planning tool for wealthy individuals. In recent years, globalised moves towards increased tax transparency and compliance have put pressure on the use of trusts, particularly on so-called “offshore trusts”. In addition, due to economic, financial and socio-economic changes over the last 50 years, the ways in which and reasons why trusts are used have also changed. The focus has, in some cases at least, shifted from providing for and protecting beneficiaries to providing a tax efficient vehicle for holding the settlor’s investments. Against this background, this dissertation examines how South African trust law deals with two main issues: the increased demand for settlor control over trust assets, as well as the possibility for trustees to exclude liability for breach of trust. The question arises whether, in such circumstances, a proper trust remains. The position under South African law is compared to that under English law and the law of the Channel Island of Jersey, by way of a study of legal sources including legislation and case law. The dissertation starts with an analysis of the history and state of trust law in the three relevant jurisdictions and highlights a number of core values that are present in all three jurisdictions. It then continues to examine the duties and obligations of trustees under the law of these jurisdictions, including the possibility to exclude liability for breach of trust in the trust deed. Differences between the three jurisdictions are highlighted. The next chapter investigates the phenomenon of excessive settlor control and the circumstances in which this can lead to either invalidity of the trust or to a court “going behind the trust”, thereby ignoring the normal consequences of the trust, and applying the trust assets in favour of someone other than the beneficiaries. The dissertation concludes that, in certain circumstances, excessive settlor control (particularly where powers and entitlements are combined) and a lack of trustee accountability can result in either invalidity or a court going behind the trust. Courts appear reluctant to ignore validly constituted trusts, but it is now accepted that circumstances may exist where justice and fairness would require such a step. The virtue of trustee independence emerges as an important counter to the argument of settlor control, and the dissertation proposes that this is an area where South African trust law would benefit from further development.

AFRIKAANSE OPSOMMING : Die trust, ‘n regsverskynsel vanuit die Engelse reg wat vandag deel is van talle ander regstelsels, is bekend as ‘n effektiewe instrument vir belasting- en boedelbeplanningsdoeleindes. Transnasionale bewegings ter bevordering van belastingdeursigtigheid en -nakoming het gedurende die laaste dekade of twee druk geplaas op die gebruik van trusts, veral die gebruik van sogenaamde “offshore” trusts. Daarbenewens, as gevolg van ekonomiese, finansiële en sosio-ekonomiese veranderinge oor die afgelope 50 jaar, het die wyse waarop en redes waarvoor trusts gebruik word ook verander. Dit kom voor asof die fokus verskuif het van voorsiening vir en beskerming van begunstigdes na ‘n belastingdoeltreffende voertuig om die oprigter se beleggings te hou. Teen hierdie agtergrond ondersoek die proefskrif hoe die Suid Afrikaanse trustreg met twee spesifieke kwessies omgaan: die toenemende behoefte van oprigters aan beheer oor trustbates, asook die moontlikheid dat trustees aanspreeklikheid vir trustbreuk kan uitsluit. Die vraag is of so ‘n verhouding nogsteeds as ‘n trust geklassifiseer kan word. Die posisie in die Suid Afrikaanse reg word vergelyk met die posisie in Engeland en Jersey deur middel van ‘n studie van, onder andere, wetgewing en regspraak. Die proefskrif begin met ‘n ontleding van die geskiedenis en huidige stand van die trustreg in die drie relevante jurisdiksies en beklemtoon ‘n aantal kernwaardes wat in al drie jurisdiksies teenwoordig is. Die volgende hoofstuk ondersoek die verpligtinge van trustees in die drie jurisdiksies, insluitende die vraag of, en indien wel, tot watter mate, aanspreeklikheid vir trustbreuk in die trustakte uitgesluit kan word. Verskille tussen die drie jurisdiksies word uitgelig. Vervolgens word die verskynsel van oormatige beheer deur die oprigter ondersoek, asook die omstandighede waarin dit kan lei tot ongeldigheid van die trust, of tot ‘n uitspraak dat die normale gevolge van die trust geïgnoreer moet word (bekend in Engels as “going behind the trust”). Die proefskrif kom tot die gevolgtrekking dat, in sekere omstandighede, buitensporige beheer deur ‘n oprigter (veral in kombinasie met ‘n oprigter wat ook ‘n begunstigde is) en ‘n gebrek aan toerekenbaarheid van die trustee kan lei tot ‘n besluit dat ‘n trust ongeldig is of dat die gevolge van ‘n geldige trust geïgnoreer moet word. Alhoewel howe in die algemeen onwillig is om geldige trusts te ignoreer, word dit nou aanvaar dat billikheid en regverdigheid so ‘n stap kan vereis. Dit is duidelik dat trustee-onafhanklikheid so ‘n besluit kan verhoed, en die proefskrif kom tot die gevolgtrekking dat trustee onafhanklikheid ‘n gebied is waar die Suid Afrikaanse trustreg voordeel sal trek uit verdere ontwikkeling.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/104965
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