I received an email from one of our customers, I will call her Mpho. She wanted to know if she should register a family trust or not. Her email went as follows “…. I am a business woman and I have a home valued at over R5 Mil and I want to ensure that it is protected against creditors in case my business fails and I also want to make sure that the home is not sold when I die. I want to leave it for my future grandchildren and great grandchildren….”
Now and again I come across people who should have a Trust but they do not have one or those who have been told they should have one but they are really not sure. So if you are wondering about whether or not you should have a Trust, below are some of the key points that you should know about InterVivos Trusts i.e. trusts that you set up while you are still alive
Parties to a Trust
The trust should have the following parties;
- Founder – this is the person that decides to have a Trust and appoints someone to drat the Trust Deed
- Trustees – these are the people that manage the trust. The Master of the High Court in the “contractually competent” requirement can request to have 1 independent Trustee and I would recommend that you appoint an independent Trustee who understands and is competent in the management of trusts. Trusts are regulated by the Trust Property Control Act so the independent trustee should be someone who understands the Act and will ensure that the trust is run in accordance with the stipulations of the Act
- Beneficiaries – these are the people that benefit from the trust. There are Capital and Income Beneficiaries
Usually this is someone who sees the need to have a Trust. As an example, this could be a business person who wants to ensure that his / her personal assets are protected against potential business failure. However, please note that this is NOT the only reason why people register trusts.
Are you wondering who is allowed or qualifies to be a Trustee?
According to Section1 of the Trust Property Control Act
“any person, (including the founder of a trust) who acts as trustee by virtue of an authorisation under section 6…”
- No specific qualifications prescribed
- Must be contractually competent, legally appointed and have accepted appointment
- A corporation can also be a Trustee
- The Founder may also be a Trustee however, they may not be the only trustee because they would then be contracting with oneself in their capacity as Founder & Trustee
- Trustee may also be a beneficiary
The importance of an Independent Trustee
- Trust Property Control Act 57 of 1988
- Nowhere in the Trust Property Control Act is it required that an Independent Trustee shall be appointed.
- Trust is therefore not invalid without an independent trustee
- No Duty on Master to check for validity of Trust Deed
- It is left to those who may have an interest in the matter to establish that the trust is unlawful or otherwise invalid
CASE Law Land and Agricultural Bank of South Africa v Parker 2005 SCA
- The Master should ensure that an independent outsider is appointed as trustee to each trust in which
- (a) all the trustees are beneficiaries; and
- (b) all the beneficiaries are related to each other
- To ensure:
(c) The Trust functions properly
(d) The Trust Deed is observed
(e) Conduct of Trustee are scrutinised and checked
What should the Independent Trustee do
- The Independent Trustee is an expert which does not have any beneficial relationship with the donor or trustee (s).
- An Independent Trustee will help to establish a valid trust and not a sham;
- An Independent Trustee is likely to improve the management of your trust and will comply with the necessary legal requirements;
- It is a common pitfall for the individual or couple who establish the trust to continue to treat the trust property as if it is still their own property. The Independent Trustee will be a check and balance between the trustees and beneficiaries;
- An Independent Trustee can be objective when it comes to the competing interests of family members.
The risk of not having an independent Trustee
- As mentioned, the independent trustee does not impact on the validity of the Trust
- However, in the event of Insolvency or Divorce it is evident from the mentioned Court Cases that the independent trustee impacts on the evaluation of the “Trust Deed” by the Courts to determine “Control”
- Independent Trustee will impact on the evaluation of the actual facts with regard to Management of the Trust
- In terms of Section 3(3)(d) of the Estate Duty Act SARS may include assets as deemed property for Estate Duty Purposes when the deceased was competent to dispose of assets, for their own benefit or for the benefit of their estate.
- The above factors might constitute that planned benefits of the trust such as protection of the assets and current tax benefits are lost
I wish to thank Adv Anneke le Roux for her contribution to this newsletter. DISCLAIMER: Note this is general information. If you are wondering whether you should register a Trust or not, you can contact us firstname.lastname@example.org to consult and we can also assist you with the drafting and registration of your trust.