Piercing the trust veneer

In appropriate circumstances the corporate veil of a trust can be pierced in the same way the corporate veil of a company can be pierced. Therefore, if the trustees of a trust does not treat it as a separate entity, and where  special circumstances exist that there is an abuse of the trust as an entity by the trustees, the veneer of the trust must be pierced.

It therefore follows that if it can be shown that a natural person behind the trust assets has de facto control of those assets and acquired and owned those assets for his own benefit only, such assets can in appropriate circumstances be regarded as the assets of that particular trustee.

In assessing the alter ego principal the following two tier test for control can be applied:

A.  De Iure control:

1. Sole trusteeship – only one trustee for trust. 2. Veto rights - especially positive veto rights 3. Sole right to amend trust deed – for example a testamentary reservation clause.

B. De Facto control:

1. The trustee’s  conduct – the way this was applied and actual way in which the powers giving de facto control were abused.

In Badenhorst v Badenhorst  2006 2 SA 255 (SCA) the court held that control would have to be de facto and not necessarily de iure. Therefor first establish the terms of the trust deed and then evaluate the the way in which the affairs of the trust were conducted.


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