eBusiness Weekly
Arthur Marara
The chaos arising from intestate estates that I have seen in my years as an attorney has made this conversation critical. Estate planning is a mandatory exercise for anyone who is serious about preserving their estates.
The previous articles were covering Wills, but this week I want to open a conversation on the subject of Trusts, and in particular family trusts.
It has already been discussed that a will is one of the methods which a person can use to protect his or her assets from falling into wrong hands in the event of one’s death. Apart from a will, a person who wishes to ensure that his assets are adequately protected from property grabbers can execute a Family Trust.
What is a (Family) trust?
The concept of a trust originated in English law over 900 years ago and continues to evolve. A trust is a legal relationship of parties which usually involve the founder, trustees and beneficiaries.
The relationship is created by the founder who places assets under the control and administration of the trustee for the benefit of named persons, the beneficiaries. It is created by a trust deed which is registered with the Deeds Office.
In simple terms, a Trust is a tripartite arrangement wherein a donor enters into an agreement with a second party (called a trustee) for the benefit of a third party called, “a beneficiary”.
The Trust is created by a founder who is known as the Donor or Settler. The Founder donates property to a trust or settles for a Trust.
The Trust can be given any name of your choice, but the practice for some people is to name it after the Founder eg The Jacob Mutevedzi Family Trust or The Frank Mutimba Family Trust or even Tendai Ndoro Legacy Trust. There are no hard and fast rules on this.
In a Family Trust the beneficiaries can be the immediate family members of the founder e.g. the spouse or the children or any person the Founder may appoint.
Legal status of a trust
This is the bit where many people have been misled. A trust has no legal personality and the common law does not recognise a trust as having locus standi to sue in its own name.
If a trust is to be clothed with juristic personality, it would be a persona made up of assets and liabilities. In fact, the assets and liabilities in a trust vest with the trustee.
When it sues or is being sued, a trust should be represented by its trustees in whom the trust’s assets and liabilities vest. (Musemwa and Others v Estate, Misheck Tapomwa & Others (HH 136/16).
The common law does not recognise a trust as having locus standi to sue in its own name. See CIR v McNeillie’s Estate 1961(3) SA 840, Braun v Blann and Botha 1984(2) SA 850, CIR v Friedmann 1993(1) SA 353(A).
The word person is defined in the Interpretation Act (Chapter 1:1) as follows “person or party includes any company incorporated or registered as such under an enactment or anybody of persons, corporate or unincorporated or any local or other similar authority.”
In the matter of Gold Mining & Minerals Development Trust vs Zimbabwe Miners Federation 2006 (1) ZLR 174 (N) Makarau JP as she then was had the following to say regarding the status of a trust — “It is trite that at law, a trust is not a juristic person.”
The author Honore, in the South African Law of Trusts 3rd ed defines a trust in the first chapter of his text.
He gives the wide meaning of the term as; “any legal arrangement by which one person is to administer property whether as an officer holder or not for another or for some impersonal object.”
The author then proceeds to refer to some cases in which the term was defined in this wide sense.
In the narrow sense “trust” exists when the creator of the trust hands over or is bound to hand over the control of an asset which is to be administered by another for the benefit of some person other than the trustee or for some impersonal object.
In either sense the author views a “trust” as a legal relationship and not as a separate legal entity, as a corporation or universitas even though the trustees may together form a board akin to a board of a company or of avoluntary association.
The view by Professor Honore above was accepted by the South African Law Development Commission in its review of the Law of Trusts of June 1987 as the correct position at Law and as the position confirmed by the South African Appellant Division.
The Author Elliot and Banwell in their book, The South African Notary 5th ed at p 79 write the position as follows: “A trust is not a separate legal persona capable of rights and duties as an individual or legal persona.
In the closing submissions it is submitted on defendants’ behalf that the application form by the plaintiff was filled in, in the name of the Trust and not the trustees . . . Absent a right there cannot be an interdict.”
A trust is not a legal persona. In the case of Mafirambudzi Family Trust & Others v Trust Madzingira & Others Takuva J ordered that the first and second respondents transfer the immovable property purchased by the applicant represented by the trustee Mafirambudzi to applicant. The said order did not detract from the legal position that a trust cannot own a property in its own right.
The applicant (Mafirambudzi Family Trust) would not have been able to sue respondent as applicant by reason of its status as a non-legal persona but for the locus standi conferred upon it by Order 2A Rule 8 of the High Court Rules 1971 — See Wilsa and others v Mandaza and others 2003 (1) SA ZLR 500H.
Objects of a trust
The objects of the trust are to vest specified assets (both movable and immovable assets) in the name of trustees or administrator for administration in accordance with the formalities of the law it is created. There are many forms of vesting the property in the hands of the trustees.
A classic example is where vesting of the assets can be in terms of a will. The will may provide as follows: “In the event of my death, I want my property to be vested in a Trust which is going to be administered by Mambo Ndini as the Trustee.” It is also possible to vest property in the Trust by means of a contract or an ante nuptial contract. An ante nuptial contract is an agreement which is entered into by two parties before entering marriage to govern their proprietary rights after marriage.
The objects of a Trust must be lawful. They must not violate public policy or perpetrate criminal activities. What constitutes public policy depends on the facts and circumstances in a given case. You cannot use a trust to hide assets. The nature of a trust has been explained above.
Formalities and benefits of a Family Trust
The Trust is prepared in terms of a Trust Deed prepared by a Notary Public. The following details need to be furnished to a Notary Public for preparation of the Deed;
Name of the trust
Full name, date of birth, ID number, address for the Founder(s) of the Trust
Full name, date of birth, ID number, address for the Trustee(s) of the Trust
Full name, date of birth, ID number, address for the beneficiaries of the Trust
Objectives of the trust
You can also get guidance on other terms for the Trust Deed.
What is the advantage of having a trust?
Estate duty
One of the main advantages of a Family Trust is that it facilitates estate planning .This is so because the Founder divests him/herself during his/her lifetime of certain of his gross assets. This consequently limits the estate duties payable on property owned by the Trust.
The following are some of the notable merits for registering a Family Trust:
a) Efficient administration — A Family Trust creates an efficient administration and protection of family assets. This happens because all the assets remain in the name of the Trust and the legacy can be passed from one generation to another. If one beneficiary is spendthrift or extravagant, then the Family Trust will regulate that conduct because the administration of the estate would be professionally done by the Trustees.
b) A Family Trust secures a measure of specialisation in the administration of the Trust assets particularly where the beneficiaries are incapable of managing their own affairs.
c) It enables the founder or settler to control the method and purpose for which the Trust assets are to be applied.
d) Fair Distribution — The fear of most people is about the unlikely fair distribution of property between heirs. The Trust is a useful instrument of estate planning and preventing unfair distribution of property when you are deceased. Everything is clearly spelt out in the Trust deed. It is also of importance to note that the inheritances of heirs who are minors and other persons who do not have contractual capacity or who are incompetent to manage their affairs, may be incorporated into a Trust so that these can be controlled and maintained by a trustee.
Comparison between a
Family Trust and a Will
A Family Trust is usually advantageous than a will in that the Founder of the Trust controls their estate during and after his death, unlike the testator in a will which only takes effect after the death of the testator. Furthermore once a Family Trust is registered it has perpetual succession and like a company it can own property in its own name and can institute or defend legal proceedings in the name of its Trustees. A Family Trust ensures that the assets of a family are professionally managed for the benefit of future generations without interference from outsiders. The Founder of the Trust who becomes the chairperson of the Family Trust during his or her life time has the discretion to donate more assets to the trust during his life time.
Unlike a will a Family Trust does not require the approval of the Master of the High Court to take effect. It normally starts to take effect during the lifetime of the Founder who retains the powers to determine the operation of the Trust. The registration of the Family Trust acts to prevent an unfortunate scenario where some intended beneficiaries of the estate may end up being deprived of their share due to oversight by the testator in a will.
The property which is vested in the name of the Family Trust is protected from being squandered unlike in a will where some irresponsible beneficiaries can recklessly spend the assets. In this context Trust will be in the best interests of the beneficiary and will avert a scenario of the biblical prodigal son. An executor in a will has to start to operate within a given period of time stipulated by the law. This does not apply to a Family Trust. The Deed of Trust itself will spell out the operations of the Trust.
There is no hard and fast rule however on the number of assets before one can register a Trust or execute a will. Any number of assets will suffice for the purposes of registering a Family Trust or drafting a will.
Recommendations
It is settled principle of practice and law that each case depends on its merits. In conclusion it is recommended that the reader chooses depending on his/her circumstances, whether to register a Family Trust or write a will. If one fails to register a Family Trust it is encouraged that he or she executes a will to protect his or her assets. The choice of which method to use really lies at one’s discretion. I recommend to many people to set up a Trust and a Will to govern other personal issues that may not be covered in a Trust, or that you may not feel confident to cover in a trust.
I hope and trust that this article has shed some bit of thoughts on the subject of ‘Family Trusts’
*LEGAL DISCLAIMER*: The material contained in this post is set out in good faith for general guidance in the spirit of raising legal awareness on topical interests that affect most people on a daily basis. They are not meant to create an attorney-client relationship or constitute solicitation. No liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the post. Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements.
Arthur Marara is a corporate and family law attorney. As an attorney, he has worked over the years on matrimonial and inheritance matters including but not limited to drafting wills, and preparing, and lodging family trusts. Follow him on social media (Facebook Attorney Arthur Marara), or WhatsApp him on +263780055152 or email [email protected]
