Will I lose control over my assets moved into a trust?
December 2nd, 2017 09:06
Many people are wary of trusts because they may be concerned that they will lose control over their assets. This fear is often enhanced by professionals advising that clients should not be seen to be involved in their trusts’ administration. Professionals even advise their clients that they cannot be the founders, trustees and/or beneficiaries of their trusts. This is clearly absurd. Why would anyone, especially while you are alive, “give away” your assets that you have worked hard for?
If this is something that concerns you, there are ways of structuring your trust(s) in such a way that you will not feel that you are relinquishing full control over your assets. There are ways of structuring your trust(s) where you can be the founder, trustee and beneficiary of the trust, while satisfying the South African Revenue Service (SARS) and the Master of the High Court of the legitimacy and lawfulness of your trust structure.
The key element of the trust arrangement is the transfer of ownership and control of the trust assets from the founder to one or more trustees who hold the trust assets, not in their personal capacities, but for the benefit of the trust beneficiaries.
Your assets are transferred to the trust and are managed by the trustees for the benefit of the beneficiaries. The use of these assets is then determined by the trust deed. You no longer own the assets, but you can exercise some influence over them by being a trustee. Trustees control the affairs of the trust, which means that you will have to pay careful attention when you select trustees, taking all sorts of scenarios into account.
Remember that, for a trust to be valid, it should be the founder’s intention to have a trust in place, and the founder should transfer legal (although not beneficial) ownership of the trust assets to the trustees. Any indication that the founder retains control over the assets may result in the trust being labelled as an alter ego trust. In this case, dire Estate Duty consequences may result.
Although the trust’s assets are managed by the trustees on behalf of the beneficiaries, the comfort that the founder has regarding the management of the assets is that the trustees are legally bound to comply with the terms of the trust deed, and with their fiduciary duties. The trustees may only distribute assets to the beneficiaries as defined in the trust deed, and in the manner prescribed by the trust deed. They are also obliged to, at all times, act in the best interests of the beneficiaries, which may include the founder.
What can you do to alleviate your fears:
- Each individual’s circumstances and wishes are different. It is therefore important that you tailor your trust deed to your specific requirements. Do not accept a stock standard template that many so-called professionals make use of. It is critical that you engage the service of an experienced professional, as the incorrect drafting of your trust deed may spell disaster.
- It is permitted that the same person is the founder, a trustee and a beneficiary, but this person is not permitted to be the only trustee and beneficiary. If you are the founder of your trust, do not allow anybody to convince you that you cannot also be a trustee (who influences decisions) and a beneficiary (who receives benefits from the trust).
- The first trustees should be carefully selected by the founder; for example, a spouse could one day become an ex-spouse, or your children can outvote you. The provision for follow-up trustees should also be well thought through by the founder and captured in the trust deed.
- The founder is entitled to include a provision in the trust deed that enables him/her to appoint replacement trustees. This will in itself not cause a problem for Estate Duty purposes.
- The founder should ensure that the decision making provisions in the trust deed are adequately considered. The founder should be able to influence, but not control decisions made by the trustees. If you insist to include a provision in the trust deed, which permits you to veto trust decisions, be mindful that all distributed trust income and capital gains will be taxed in your hands, resulting from a soft loan or assets donated to the trust by you.
- It is acceptable to insert a clause in the trust deed that requires the founder to be present at a meeting in order to constitute a quorum and to be part of a decision. This will not be problematic for Estate Duty purposes, unless the founder reserves a casting vote for himself/herself, which will enable the founder to dispose of the trust assets for his/her benefit, or for the benefit of his/her estate, shortly before his/her death. This will trigger Estate Duty on the trust’s assets upon your death.
In summary, provided the founder is not seen to control the trust assets, either through his/her behaviour or through empowering provisions in the trust deed, he/she may retain some influence over the trust assets, and not lose complete control over them.
~ Written by Phia van der Spuy ~