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Making a purchase through a trust yet to be formed.

In this article we will focus on actions taken on behalf of a trust, yet to be formed.

By way of example:

John is desirous of buying a holiday home on the coast. He already has three other properties registered in his personal name and his attorney and financial adviser advised that he rather purchase the holiday home in a trust. John decided to register a trust, completed all the application forms, signed the trust deed, and lodged the same at the Master in Cape Town.

However, before John received his letter of authority to act as the trustee, he went on holiday and found the perfect holiday home. He immediately signs an offer to purchase with an estate agent in the name of the trust to be formed under the impression that he is able to act legally as trustee of the trust.

The seller accepts the offer. Two weeks later the seller receives a better offer and cancels the agreement with John on the basis that the offer to purchase is invalid as John did not have the necessary authority to act. John consults with his attorney with the instruction to enforce the agreement of sale.

Section 6(1) of the Trust Property Control Act 57 of 1988 provides that a person appointed as trustee of a trust, “…..shall act in that capacity only if authorized thereto in writing by the Master.” This means that a person appointed as a trustee of a trust can only act in his/her capacity as trustee of such a trust after a letter of authorization has been issued by the Master. All acts concluded by such a person in his/her capacity as trustee of trust yet to be formed prior to the receipt of the written authority of the Master are null and void. In short, a person’s office as trustee only originates on the date on which the Master issues a letter of authority.

In the matter of Simplex (PTY) Ltd v Van der Merwe and Others NNO, 1996(1) SA 111 (W) the court had to deal with similar facts as those in John’s case above. The court held that

a) an act (in this case an agreement of sale) so concluded by trustees prior to the receipt of the written authority of the Master is void; and that
b) it cannot be resuscitated by subsequent ratification either by the Master or by the trustees or even by the court.

The act/agreement is rendered void ab initio in the sense that it is to be regarded as never having been concluded.

It is clear from the legislation and case law above that John’s act as trustee on behalf of a trust to be formed before he was issued with a valid written letter of authority, is void ab initio and will he not succeed in enforcing the agreement of sale as binding as it will be regarded as never having been concluded.

It is important that you consult with your attorney before you enter into any transaction without being properly advised of the validity and correctness of the same. There are certain small errors or omissions such as in John’s case that could prove costly and cause undue disappointment.