Notes on Trusts by Garth Watson.
There may, says Garth Watson, a director in the legal firm, Gunstons Attorneys, be a number of good reasons why a property investor may wish to set up a trust. In Watson’s experience, many people, who set up trusts for the ownership of property do not appreciate that placing property in a trust divests one of ownership of the property.
Quite often, says Watson, you will hear the founder or trustee of a trust refer to the property as my property, which reveals a fundamental misunderstanding of what a trust actually is.
A trust, says Watson, is a legal concept inherited from English law. It is not a separate legal entity like a company, but a contractual arrangement between the founder/benefactor and the trustees in terms of which trust property is managed for the benefit of the beneficiaries.
The trustees in fact become the legal owners of the property but they have to manage it in terms of the trusts provisions (which may only be altered in terms of the provisions of the trust deed itself).
Quite often, says Watson, the donor/benefactor may wish to alter one or two provisions of the trust deed, he may even wish to cancel a beneficiary’s rights but he can only act if the specified number of other trustees vote in favour of the action and if such action is authorised by the provisions of the trust deed.
When an outsider deals with a trust e.g. in selling a property to the trust, care must be exercised to ensure that the required number of trustees have agreed to the sale and that the beneficiaries consent, if necessary, has been obtained. If this is not the case, the trust may have the right to set aside the transaction
Founders of trusts have to accept that if they set up a trust and donate or sell a property to the trust, they effectively give up ownership of the property to the trustees. The founder of a trust may well be a trustee himself, but this still does not entitle him to handle the trusts property as if it is his own. Every property investor needs to appreciate this basic aspect of using trusts.