The dangers of acting before a trust is registered

By Newsletter

Many investors understand just how vital a trust is to protect and grow their wealth, but do not always necessarily understand how important it is that the proper process is followed to register a trust before pursuing the expansion of their investment portfolio.

On registration of a trust, the Master of the High Court confirms, in writing, the appointment of the trustees by issuing the Letter of Authority. This states the name and IT number of the trust as well as the name, surname and ID number of each trustee. Once the Letter of Authority is received, the trustees have the authority to act on behalf of the trust and are able to start to transact on behalf of the trust.

It is incredibly important to remember that you can’t act on behalf of the trust before the trust is registered and the Letter of Authority has been issued. “We often come across parties being advised to enter into an offer to purchase immovable property on behalf of a trust yet to be formed,” says Daniël Coetsee, head of Trustfocus. “A trustee can’t enter into such a contract if the trust has not yet been registered. Section 6 of the Trust Property Control Act specifically provides that a trustee cannot perform valid acts unless authorised in writing by the Master to act as a trustee.”0366E851000003E8-3832329-image-m-23_1476183283182

An example of this situation is illustrated by Simplex Ltd v Vd Merwe and Others (1996) where the court confirmed that Section 6 of the Trust Property Control Act was not only for the benefits of the beneficiaries but that it is in the public interest to provide written proof to others of the appointment of the trustees. The court concluded therefore that an act by a person acting with no authority from the Master is ab initio void and therefore has no legal consequences.

Further, the court upheld that there can be no ratification of an agreement which statutory prohibition has rendered ab initio void in the sense that it is to be regarded as never been concluded.

In addition to the above, in terms of the Alienation of Land Act 68 of 1981 no alienation of land shall be valid unless contained in a written deed of alienation and signed by all parties thereto or by their agents on their written consent.

As you can see, it is therefore critical that the Letter of Authority is issued, and a written resolution to act is obtained, prior to signature of the agreement.

Another danger which arises when a party acts without written authority is that SARS may deem the transaction to be a ‘double transfer’, in that the party who acted acquired the property in his own name and subsequently sold it to the trust. This has massive financial implications, as double the transfer duty and attorney fees would then be payable.

So, it is clear that parties who have been nominated to be appointed as trustees should refrain from acting in such capacity until the registration of the trust is completed. It is also very important that parties contracting in good faith with a trust should request proof of the Letters of Authority to confirm that the trustee has the written authority from the Master to act as such. If not, they run the risk that these contracts may be declared void and unenforceable if found that the trustee did not have the property authority to act.

To discuss the creation of a trust contact Trustfocus to arrange a free consultation with one of our skilled consultants:


CAPE TOWN – 021 979 2501

PRETORIA – 012 943 0201

DURBAN – 031 110 0817