How to protect your assets

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The number one wealth preservation rule is to protect your assets. If you have your own business, sizeable investments and/or other assets, then you might want to pay attention. One of the most important reasons to consider a trust is because it will help you to separate your assets from your property investment debt, your business interests, and/or your other financial risks.

How easy is it to have a trustee removed?

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The removal of trustees will always be a delicate matter, especially in terms of a testamentary trust where the testator or testatrix handpicked the trustee(s). It was held in the Gowar v Gowar case of 2016 that the Court’s power to remove a trustee must be exercised with caution – it should consider whether the trustee’s conduct endangered the trust assets or its proper administration. Conflict between the trustees and/or beneficiaries is, therefore, not sufficient reason for a court to remove a trustee. The overriding factor is the welfare of the beneficiaries and the proper administration of the trust and the trust assets.

Do you want to bequeath your assets to an existing trust upon your death?

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In many instances, it may make sense to utilise existing trust(s) as part of your legacy plan. Your assets can be bequeathed to an existing trust – if the trust instrument allows for it. If this is the case, the trustees of that trust have to be specifically empowered in terms of the trust instrument to accept such a bequest. Review the trustee power clause to ensure that the trustees can, in fact, accept further donations or bequests.
An obvious asset to bequeath to a trust is a loan owed by the trust to the testator or testatrix. Such loans typically originate from the sale of assets to a trust. The testator or testatrix can also bequeath other assets to one or more existing trusts.
While it appears that one can bequeath assets to both vesting and discretionary trusts (both ownership trusts, where the assets are held by the trustees for the benefit of beneficiaries), it is important to be mindful of certain principles.

Is the time right to consider forming a trust?

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2021 turned out to be a challenging year for many people and very few of us had the time to reflect and consider our personal financial and estate planning. Many jobs have been lost and it proved to be particularly challenging for business owners. A number of people can attest to the devastating consequences of not having one’s financial affairs in order by the time one is faced with a financial challenge and upon someone’s death. Now that many people are taking a holiday break, it may be wise to reflect and to consider one’s personal financial situation and estate plan.

No trustee can turn a blind eye to the wrongdoing of another

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Trusts are often trusts in name only, with an essential principle of trust law, namely the independence of trustees, neglected (Tijmstra v Blunt-Mackenzie case of 2002). It is, therefore, important to note that all trustees are acting in a fiduciary capacity, and no one trustee can hide behind another. A fiduciary duty is an onerous, legal obligation (a duty of loyalty and care) of a person managing property or money belonging to another person to act in the best interests of such a person. All trustees, without exception, are to act with the care, diligence and skill, which can reasonably be expected of a person who manages the affairs of others (Section 9(1) of the Trust Property Control Act).

Is your independent trustee a ’super’ trustee?

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It has become a requirement to appoint an independent trustee in certain circumstances. Developments in legal precedent, the Master of the High Court’s views and practice, as well as the impact of professional bodies on persons considering to act as trustees, are important considerations when it comes to the consideration of the relevance and importance of an independent trustee.

Be careful if you distinguish between trust beneficiaries

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Trustees should act in the best interests of all the beneficiaries, in line with the terms of the trust instrument. In the Griessel v de Kock case of 2019 the Court held that the “role of a trustee in administering a trust calls for the exercise of a fiduciary duty owed to all the beneficiaries of a trust, irrespective of whether they have vested rights or are contingent beneficiaries whose rights to the trust income or capital will only vest on the happening of some uncertain future event”. If income and capital beneficiaries are not the same people, it may present a potential conflict which the trustees would have to manage.

Can you still reduce your loans to trusts with tax-free donations?

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You can donate R 100 000 (the annual Donations Tax exemption applicable to each South African resident individual) a year without paying Donations Tax (Section 56(2)(b) of the Income Tax Act). In effect, the exemption allows a couple to donate R 200 000 a year to a trust or other beneficiaries without incurring any taxes. However, you cannot accumulate this exemption. If the exemption is not used in one tax year, it cannot be carried through to the next tax year. It is, therefore, important to make use of the exemption every year. You can also use the R 100 000 annual Donations Tax exemption applicable to each South African resident individual to reduce your loan to a trust, which is an asset in your estate, until the loan is fully repaid. For as long as the loan has a balance outstanding, trust assets are at risk, as a liquidator or executor may have the trust assets liquidated for the trust to settle the outstanding loan. However, be mindful that SARS may now apply Capital Gains Tax as a result of such ‘waiver’.