By Shamiso F. Mangwengwende, Senior Associate.

We continue with our series on estate planning with an over view of Trusts.

What is a Trust?

A Trust is a legal relationship or arrangement in which one party, known as a Settlor/Grantor (who is also the Founder of the Trust), gives another party, the Trustee, the right to hold title to property or assets for the benefit of a third party, the Beneficiary. A Trust may be used to hold and protect personal or business assets, which is beneficial in the event of liquidation, sequestration, divorce or death. Trusts may also be used to hold shares in businesses and to ensure the continuity of ownership of both business and family assets.

How is a Trust created?

A Trust is created through a document called a Trust Deed. The Trust Deed has to be drafted, notarised and registered with the Registrar of Deeds by a lawyer. The Settlor has to select a minimum of two individuals to act as Trustees who are responsible for the administration of the Trust. This means that the Trustees are the ultimate decision makers when it comes to the use of the trust assets so it is important for one to carefully consider the appointment of Trustees who need to be people that you can trust e.g. family members, lawyers, chartered accountants. The beneficiaries of the Trust have to be named and these can include the Settlor, family members, friends, classes of people (e.g. disadvantaged persons) and companies.

What kind of property/assets can be vested in a Trust?

Property such as vehicles, securities, money, pensions, livestock and immovable property may be vested in a Trust. The assets that are given to the Trust are listed in the Deed but some people skip the next step of transferring those assets into the name of the Trust. If the assets are not transferred into the name of the Trust, e.g. a house remaining in the name of the Settlor, it will be very difficult for the beneficiaries to assert any rights to that property.

Advantages of a Trust

Tax breaks – a Trust usually does not have to bear any estate taxes, duties and charges in the event of the death of the Founder. The beneficiaries continue to benefit from the assets of the Trust without any disruption to their income. A Trust is usually only expected to pay income tax.

Protection of assets – assets that are vested in the Trust are usually protected from creditors in the event of the death of the Founder of the Trust. This is especially beneficial in ensuring the future of one’s children.

Independence –the Trustees can make independent decisions for the benefit of the Beneficiaries e.g. investing Trust assets for income generation and they have full control of the assets with minimal regulatory interference as long as their actions are lawful.

Appointment of professionals – the assets of the Trust can be handled by competent people in instances where professional individuals are appointed as Trustees e.g. accountants, lawyers. The responsibility of administering the Trust does not necessarily have to rest on family members who may not want to be involved in that aspect of the Trust. The appointment of a professional also means that they can bring an independent voice to the Trust in the event that the rest of the Trustees are family members or friends.

Confidentiality – the details of the Trust are confidential and cannot be released without the consent of the Trustees. Trust assets also do not appear in deceased estates processes in the office of the Master of the High Court when a deceased estate is registered.

Personal management – an individual can manage and control his/her assets during his/her lifetime.

Disadvantages of a Trust

Potential for abuse of Trust assets – while Trustees have a fiduciary duty to administer the trust assets for the benefit of the beneficiaries, there is potential of abuse and misuse of trust property by Trustees who are generally protected from liability unless they engage in criminal activity. The Trustees therefore have to be people that can be trusted to adhere to their duties as stated in the Deed.

Loopholes – arrangements for issues like guardianship of minor children, appointment of an executor and funeral arrangements generally cannot be addressed in a Trust. If the Founder does not have a Will addressing these issues then they will be dealt with as if the deceased was intestate. It is advisable to have both a Will and Trust for completeness.

Cost – it can be expensive to establish a Trust in terms of legal fees, registration fees and conveyancing of immovable property. One has to consult their lawyers in detail to understand all the costs before deciding to create a Trust to allow adequate negotiation and preparation for all the costs involved.

There is a lot more detail to be considered in the process of creating a Trust and legal advice should be sought before embarking on this process.

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