30 years of trusts: Part two

Please also see Part One, Part Three, Part Four and Part Five.

Ireland: A 30-year trust timeline

1995

Stacey v Branch.^[1] The High Court of Ireland (the High Court) considered a claim by a beneficiary for breach of trust against the defendant trustee for alleged mismanagement of trust assets. The High Court considered specific powers of the trustee contained in the trust deed and, on the facts, concluded that the trustee’s decisions made relating to the trust assets were made bona fide in the exercise of his discretion and the beneficiary’s claim was dismissed.

1998

Trustee (Authorised Investments) Order 1998. Amends the Second Schedule to the Trustee (Authorised Investments) Order, 1998, which specifies conditions to apply to the investment of trust funds affected by the Trustee (Authorised Investments) Act, 1958.

Finance Act 1998. Introduces changes to the taxation of trusts and domestic anti‑avoidance legislation on the transfer of assets abroad, to reflect the alignment with principles of tax residency.

1999

For trusts established on or after 1 December 1999, the basis of a charge to capital acquisitions tax (Irish gift and inheritance tax) is aligned with the principles of tax residency. A charge to capital acquisitions tax may potentially arise where a gift/inheritance is taken under a discretionary trust and either:

• the settlor is resident or ordinarily resident in Ireland at the date of establishment of the trust or at the date of the benefit;
• the settlor is (in the case of a benefit taken after their death) resident or ordinarily resident in Ireland at the date of their death;
• the beneficiary is resident or ordinarily resident in Ireland at the date of the benefit; or
• the property in question is situate in Ireland.

For discretionary trusts established prior to 1 December 1999, it is necessary to consider the principles of domicile under Irish common law, and the change introduced above represented a significant change in the basis of taxation of Irish discretionary trusts.

Finance Act 1999. Introduces tax rules relating to trusts for permanently incapacitated individuals and the expansion of certain anti‑avoidance provisions for capital gains tax (CGT) purposes in certain circumstances.

2000

In December 2000, the Law Reform Commission of Ireland (the Law Reform Commission) drafts a report that concludes there is a genuine need for legislation allowing for the variation of trusts under Irish law.^[2]

2002

Amendment Order 2002. Amends the Second Schedule to the Trustee (Authorised Investments) Order, 1998, which specifies conditions to apply to the investment of trust funds affected by the Trustee (Authorised Investments) Act, 1958.

2003

Capital Acquisitions Tax Consolidation Act, 2003. Consolidates existing enactments relating to capital acquisitions tax and discretionary trust tax (DTT).

2005

O’Mahony v McNamara.^[3] The High Court confirms that the decision in Schmidt v Rosewood Trust Ltd was followed in Ireland. The decision confirms that a beneficiary‘s right to seek disclosure of trust documents is simply an aspect of the court‘s inherent jurisdiction to supervise and intervene in the administration of a trust.

2005

Revenue Commissioners v Executors and Trustees of Jeannie Hammett Irvine, Christie & Others (In re Irvine Deceased).^[4] A significant decision clarifying when a charge to DTT would arise where the residue of a deceased’s estate passed to a trust established under the residuary clause of the deceased’s will. The High Court determines that the charge to DTT arose when the trust was constituted following the administration of an estate once the residue had been ascertained. The Finance Act 2012 introduces legislative changes that overturns this decision.

2008

The Law Reform Commission makes recommendations relating to the modernisation of Irish trust law, including on issues such as the office of a trustee, renumerating trustees, a trustee’s duty of care and powers of investment, sale, purchase and delegation. The Law Reform Commission also makes recommendations regarding the liability of trustees and the variation of trusts. Some of these recommendations are given force of law, following the enactment of the Land and Conveyancing Law Reform Act 2009.

2009

Land and Conveyancing Law Reform Act 2009 (LCLRA). Introduces significant reform to certain aspects of Irish trust and conveyancing law. The rule against perpetuities, which required that trusts not continue for longer than a few generations, is abolished for present and future trusts from 1 December 2009.

The LCLRA establishes the new statutory model of a ‘trust of land’ and applies to all trusts of land including:

• ‘strict settlements’ where land is settled directly on persons, by an instrument whenever created, without the use of a trust;
• where land is held on a trust;
• where land vested before or after 1 December 2009 in a minor.

The LCLRA also confers a general jurisdiction on the Irish courts to vary trusts and this jurisdiction is in addition to the application of the common‑law rule in Saunders v Vautier.^[5] An ‘appropriate’ person can apply to court, in relation to the ‘relevant trust’, for an order to approve an arrangement, provided that the arrangement had previously been agreed by each person (who is not a relevant person) who is beneficially entitled to the trust assets and is capable of assenting to the arrangement. Such applications must be made on notice to the Irish Revenue Commissioners.

Charities Act 2009 (Charities Act). Brings in significant advancements to the area of charities law in Ireland, where charities are often conducted through the use of a charitable trust. The Charities Act confirms that a charitable organisation may be a charitable trust but must not remunerate charity trustees. It sets out who the charity trustees of a charity are and their duties. Charity trustees may also be liable where an offence has been committed by a charitable organisation.

2010

Criminal Justice (Money Laundering and Terrorist Financing) Act, 2010. Introduces rules requiring any person wishing to carry on the business of a trust or company service provider to obtain authorisation from the Minister for Justice and Equality.

2011

Amendments to DTT provisions to align with civil partnership legislation.

2012

Clarifications to the application of DTT to other entities. The DTT provisions, introduced by the Finance Act 2012, apply in the case of discretionary trusts created by a person’s will where the person dies on or after 8 February 2012. The change extends the definition of ‘discretionary trust’ to capture entities that are similar in effect to a discretionary trust in other jurisdictions, including foundations, stiftungs and anstalt. These entities that are not entities under Irish law may still come within the charge of DTT in certain circumstances.

Finance Act 2012. Introduces changes to the anti‑avoidance rules that apply to non‑resident trusts.

2014

Greene & others v Coady & others.^[6] Referred to in media reports as the ‘Element Six case’, the High Court considers an alleged breach of trust claim brought by a group of plaintiffs (who are members of an employee pension scheme) against the trustees of the pension scheme. The High Court held that the trustees of the scheme had acted reasonably and in the interests of the members as a whole when they agreed to accept an offer to wind up the scheme following a contribution being made from the company. The case offers guidance on the conduct of trustees and on issues relating to conflicts of interest.

2016

Finance Act 2015. Introduces changes to anti‑avoidance provisions for individuals with offshore structures, including non‑resident trust structures, from 1 January 2016. In certain circumstances, income payable to persons resident abroad, such as trustees, may be attributed to the settlor and/or the beneficiaries, even where such persons are non‑Irish‑domiciled individuals who would otherwise be entitled to avail of the remittance basis of taxation. This may be subject to saving provisions within the legislation.

Finance Act 2016. Introduces changes to the anti‑avoidance rules relating to the attribution of gains for non‑resident trusts. The anti‑avoidance provisions should not apply where the non‑resident trust was established for bona fide commercial purposes and not for the purpose of avoiding a tax liability in Ireland.

European Union (Anti‑Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016.^[7] Gives domestic effect to AML provisions.

2017

Finance Act 2017. Introduces changes to the anti‑avoidance rules relating to the attribution of gains for non‑resident trusts. The application of these rules is limited in cases relating to genuine economic activities carried on in EU Member States to comply with principles of EU law.

2018–2021

Successive legislative changes giving domestic effect to the EU Fourth Anti‑Money Laundering Directive and Fifth Anti‑Money Laundering Directive provisions, including:

• Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018;
• European Union (Anti‑Money Laundering: Beneficial Ownership of Trusts) Regulations 2019;
• European Union (Anti‑Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 (SI 110 of 2019); and
• EU (Anti‑Money Laundering: Beneficial Ownership of Trusts) Regulations 2021, which came into effect on 24 April 2021 (the 2021 Regulations).

The 2021 Regulations provide for the establishment of the central register of beneficial ownership of relevant trusts in Ireland (which will include private express trusts) to be maintained by the Irish Revenue Commissioners. Existing trusts within scope of the 2021 Regulations must register by 24 October 2021, and subsequent trusts within six months of coming into existence.

Jersey: A 30-year trust timeline

1991

Companies (Jersey) Law 1991. Introduces modern legislation governing the formation and administration of private companies in Jersey.

1994

Limited Partnerships (Jersey) Law 1994. Introduces legislation to govern the use of limited partnerships in Jersey.

1998

Financial Services (Jersey) Law 1998. Introduces legislation to regulate funds service business, investment business and trust company business.

1999

Proceeds of Crime (Jersey) Law 1999. One of three statutes forming part of AML legislation in the UK creating money‑laundering offences.

2000

A system of regulation designed to provide a comprehensive system for trust business is implemented.

2001

In re S Settlement.^[8] On an application by trustees for the court’s approval of a proposed course of conduct, the court should consider whether the proposed course is within the trustees’ powers, which should be decided in open court. If so, it should consider whether it is a proper exercise of the power. The trustees may prudently seek approval, traditionally in camera without adversarial argument, because of the momentous nature of the action. The court may also consider whether the trustees wish to surrender their discretion, which is traditionally heard in camera without adversarial argument if the parties agree, or do not violently disagree, on a particular course of action. The court should also consider whether the trustees have taken action that is being challenged. Hostile litigation should be decided in open court.

2003

Parujan v Atlantic Western Trustees Ltd.^[9] The court may remove a trustee if it would be in the interest of the beneficiaries of the trust. Mere friction or hostility between the trustee and the beneficiaries is an insufficient reason for removal, unless it renders the trust unmanageable or is caused by the administration of the trust. A trustee should resign if they have been guilty of misconduct.

2005

Competition (Jersey) Law 2005. Introduces the law governing competition in the markets.

2006

In re Ogier Trustee (Jersey) Ltd.^[10] A retiring trustee has a duty to cooperate fully and actively on the transfer of the trusteeship and to disclose trust documents and full information on trust assets and holdings to the new trustee. A failure to provide such information is a breach of fiduciary duty and indemnity costs will normally be ordered if proceedings have to be taken to compel the retiring trustee to provide the information. The fact that the principal beneficiary already has the information will be irrelevant.

2008

Money Laundering (Jersey) Order 2008. Replaces the Money Laundering (Jersey) Order 1999. Addresses the provisions set out by the Financial Action Task Force’s recommendations in 2003.

Re Turino Consolidated Ltd Retirement Trust.^[11] The court has no power to vary a fixed trust of its own volition and its general supervisory power under this paragraph does not confer a power to do so (save in the limited administrative respect mentioned in this provision). The court can only vary a fixed trust to a limited extent under art.47(1) by approving on behalf of minors and unascertained beneficiaries a variation that is agreed by all the adult beneficiaries.

In re E Trust.^[12] When requested to resign, a trustee should consider the principles applied by the court on an application to remove a trustee. That is, it is guided by the welfare of the beneficiaries and the competent administration of the trust in their favour; a trustee will be removed for misconduct that endangered the trust property or showed a want of honesty, proper capacity to execute their duties or reasonable fidelity; a trustee will not be removed for mere friction or hostility with the beneficiaries unless it is caused by the administration of the trust; and the court can remove a trustee who fails to recognise a conflict of interest.

A Trustees Ltd v W.^[13] If a trustee has a conflict of interest, it can:

• resign (which will not always be practicable);
• surrender its discretion to the court; or
• exercise its discretion if it believes it is fairly and reasonably able to do so.

2009

Foundations (Jersey) Law 2009. Introduces foundations to Jersey.

In re A Trust.^[14] A trust or a disposition of funds into a trust may be set aside under para.(2)(b)(i) on the grounds of mistake if a donor or settlor was under a mistake (whether of fact or of law) that was so serious as to render it unjust on the part of the donee to retain the property given to them. For example, a mistaken belief by a donor that they were non‑domiciled and would therefore avoid a substantial liability for UK inheritance tax. The court must be satisfied that the donor or settlor would not have entered into the transaction ‘but for’ the mistake. A transaction set aside for mistake is voidable not void ab initio.

2010

In re Exeter Settlement.^[15] A trust is void from the outset if there are no defined beneficiaries. The power to add any person as a beneficiary (except an excluded person) does not provide sufficient certainty as to the beneficiaries. A possible object of such a power is not a beneficiary unless or until the power is exercised in their favour.

2015

In Re Z Trusts.^[16] An insolvent trust should be administered in the best interests of the creditors and insolvency for these purposes is determined on a cash‑flow basis.

2016

Jersey receives independent endorsement of the quality of its regulation from MONEYVAL.

2017

In re F Charitable Trust.^[17] On a trustee’s application for the court’s blessing of a momentous decision, the court must satisfy itself that the proposed exercise of the trustee’s power is lawful and does not infringe the duty to act as ordinary, reasonable and prudent trustees might act.

2017

The introduction of Jersey private funds boosts the funds business.

2018

Data Protection (Jersey) Law 2018. Follows the introduction of the EU General Data Protection Regulation.

2021

Today, there are 30,000 trusts administered in Jersey and 400 foundations under administration.

South Africa: A 30-year trust timeline

1993

Friedman.^[18] A trust is not an incorporated company.

1996

Simplex v Van der Merwe.^[19] Prohibition on acting as a trustee until authorised thereto in writing by the Master.

Gross v Penz.^[20] A distinction between action brought on behalf of a trust and actions brought by trust beneficiaries in their own right against a trustee.

1998

Hofer v Kevitt.^[21] The exercise of an equitable discretion to protect the interests of non‑parties to a deed (such as potential beneficiaries) is not imported by law into the office of a trustee.

1999

Richards Estate v Nichol.^[22] A trust object is sufficiently certain where a trustee is given a discretion to select beneficiaries from a specified class of persons.

Doyle v Board of Executors.^[23] A trustee owes a duty to account to the beneficiary of a trust, irrespective of him only having a contingent right.

2000

Jowell v Bramwell Jones.^[24] The mere fact that a particular transaction may appear to favour an income beneficiary rather than the capital beneficiary does not necessarily mean there was a breach of trust.

2001

CGT is introduced in consequence whereof a portion of the trust’s net capital gain is included in its taxable income.

Man Truck v Victor.^[25] As a general rule, where a third party conducts business with a trust, that party is deemed to be aware of the contents of the trust deed.

Jordaan v Jordaan.^[26] The trust can be seen as an alter ego, for the purposes of the Divorce Act 1979.

2002

Transfer Duty Act 1949 is amended so that the sale of an interest in a discretionary trust owning residential property is subject to transfer duty.

Tijmstra v Blunt.^[27] Trustees of the trust can be removed from the office of trustee, based on their conduct.

2003

Liebenberg v MGK.^[28] The trustee is not authorised to execute an unlimited suretyship for a beneficiary’s debts.

Coetzee v Peet Smith Trust.^[29] The law relating to joint ownership, with regards to decision‑making applicable to trust law, unless the trust deed or will contained provisions to the contrary.

Maritz v Maritz.^[30] The trust is not taken into account in a redistribution order as an alter ego, as there is no deceptive, dishonest or mean attribute.

2004

Vrystaat Mielies v Niewout.^[31] The trustees are to act jointly, unless there is explicit authorisation.

2005

Welch’s Estate.^[32] The transfer of assets to a trust does not constitute a donation for tax purposes in terms of a divorce settlement as it is not motivated by pure liberality or disinterested benevolence.

Land Bank v Parker.^[33] A provision requiring that a specified number of trustees must hold office is a capacity‑defining condition. It lays down a prerequisite that must be fulfilled before the trust estate can be bound. The court criticises the misuse of trusts and suggests that an independent trustee be appointed when all the trustees are beneficiaries and all the beneficiaries are related to each other.

2006

Badenhorst v Badenhorst.^[34] The mere fact that the assets vested in the trustees of a trust and do not form part of the parties’ estate does not, per se, exclude them from consideration when determining what has to be taken into account when making a redistribution order.

Minister of Education v Syfrets Trust.^[35] Testamentary provisions in a will constitute unfair discrimination and are contrary to public policy as reflected in the foundational constitutional values of non‑racialism, non‑sexism and equality. It follows that the court is empowered, in terms of the existing principles of the common law, to order variation of the trust deed in question by deleting the offending provisions from the will.

2007

Thorpe v Trittenwein.^[36] A trustee can not validly conclude an agreement of sale of immovable property if they are not authorised in writing by the other trustees to conclude such an agreement.

T Trust v Csars Gauteng Tax Court.^[37] The substitution of the trustees and beneficiaries of a trust in exchange for a monetary reward constitutes a transaction upon which transfer duty can be levied.

Soekoe v Le Roux.^[38] A trustee remains legally accountable to his fellow trustees for the entire period until the Master officially removes him from office as a trustee.

2009

Nedbank v Thorpe.^[39] The way in which a trust is used is of utmost importance in influencing a court’s decision.

BOE Trust Ex Parte 2009.^[40] Recognition of the right to freedom of testation has to imply that effect has to be given to the expressed wishes of the testator, except in the circumstances set out in the Trust Property Control Act 1998 (i.e., if it is possible to establish that the provision brought about consequences that the founder of the trust does not contemplate or foresee).

2010

The Abraham Krok Trust v CSARS.^[41] The capital distribution from the trust to sub trusts does not constitute a donation.

Lupacchini v Minster of Safety and Security 2010.^[42] An appointed trustee may not commence legal proceedings relating to the affairs of the trust, nor may one trustee authorise another to institute proceedings on their behalf, unless they have had the relevant authorisation.

Steyn v Blockpave.^[43] It is not the majority vote but rather the resolutions by the entire complement that bind a trust. A trust operates on resolutions and not votes.

2011

First Rand v Britz.^[44] A sufficient paper trail should be kept for all trust transactions and all transactions of the trust should be considered, treated and required to be at arm’s length.

Potgieter v Potgieter.^[45] The variation of the trust deed is found to be invalid for a lack of consent by the beneficiaries, who previously accepted the benefits bestowed on them. Hence, the original provisions of the trust deed, prior to the amendment, should prevail.

Rees v Harris.^[46] In appropriate circumstances, a court can lift the veil of a trust and treat its assets as the personal property of a trustee.

2012

Meijer v Firstrand.^[47] If a trustee wishes to resign, they must give notice in writing to the Master and ascertained beneficiaries with legal capacity.

Melville v Busane.^[48] A trust must be sequestrated and liquidated.

Board of Executors v Gotlieb Trust.^[49] Discriminating on grounds of gender when awarding bursaries will not be allowed.

2013

Groeschke Trustee of the Family Trust.^[50] At the founding of the trust, the sole trustee cannot be the sole beneficiary. However, should this occur during the existence of the trust, because of some or another intervening event or circumstance, although being an undesirable state of affairs, it would not invalidate the trust.

2014

Van Zyl v Kaye.^[51] The court analyses the requirements for a sham and alter ego trust.

2015

The Davis Tax Committee (DTC) publishes its first report. The report singles out certain aspects that the committee believed were tax‑avoidance vehicles or measures. The report commented on the postponement of estate duty through the use of trusts, the avoidance of tax through the flow‑through principle and interest‑free loans to trusts. The report insists that trusts were used as a tool to avoid tax in an unprecedented manner and also alludes to the wealth disparity in South Africa, arguing that estate duty and donations tax are the only wealth taxes that are implemented in South Africa. As such, the DTC argues that the underperforming collections regarding wealth taxes could be remedied by making trusts less attractive and thereby curbing the use of trusts.

2016

The DTC publishes its second report, in which certain of the aspects of the first report are dealt with in more detail. Although acknowledging that it does not have the necessary information at its disposal to predict with any certainty the extent of tax losses associated with the use of trusts, the committee continues to make drastic recommendations as far as trusts are concerned.

Gowar v Gowar.^[52] Mere friction or enmity between the trustee and the beneficiaries will not in itself be adequate reason for the removal of the trustee from office, nor would mere conflict among trustees themselves be a sufficient reason for the removal of a trustee at the suit of another. The overriding question is always whether the conduct of the trustee imperils the trust property or its proper administration.

2017

A legislative provision is introduced, in the form of Section C of the Income Tax Act, which is aimed at the prevention of estate duty savings achieved by trusts. The basic principle underlying the section is to create a mechanism whereby the growth in value of a trust asset, which was transferred to the trust by a connected person in relation to that trust at an interest‑free or low‑interest rate loan, is subdued because of the fact that the foregone interest on that loan is deemed to be a donation on which donations tax must be levied.

The Chief Master issues a directive to all Masters in the performance of their functions regarding trusts.

2018

Du Plessis v Van Niekerk.^[53] There must be good cause for a majority of trustees to remove a trustee and the request had to be based on reasonableness.

2019

Nair v Nair.^[54] The termination of the trust is not to the benefit of the beneficiaries. The court removes the trustees and orders the Master to appoint two independent and appropriately skilled trustees.

Griessel v De Kock.^[55] A contingent beneficiary in a trust does have rights worthy of the court’s protection. The role of a trustee in administering a trust calls for the exercise of a fiduciary duty owed to all the beneficiaries of a trust, irrespective of whether they have vested rights or are contingent beneficiaries whose rights to the trust income or capital will only vest on the happening of some uncertain future event.

Ferreira v Van der Merwe.^[56] The trustees pass a resolution to amend the deed by replacing it with a new deed. The amendment is invalid as there was no provision in the original trust deed allowing the amendment of the deed and the beneficiaries who had accepted benefits did not consent to the amendment.^[57]