When trust assets are at risk during divorce

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The reality is that almost half of all marriages end in divorce. It is also a reality that future-to-be-ex-spouses usually attack trust structures set up by their spouses in an attempt to maximise their claims. Aside from being an emotionally traumatic life event, divorce can often have a severe impact on a person’s financial security and quality of life. Divorce generally goes hand in hand with a great deal of distress over the manner in which the assets that have been built up during the marriage are to be divided.

When a trustee can and cannot be removed

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Trustees are legally vested with the administration of the trust’s assets. They must manage the assets and liabilities of the trust in terms of the provisions of the trust instrument and the law, and not necessarily in a manner that pleases the beneficiaries. Disharmony may exist in the administration of a trust - this is in itself not sufficient for the removal of a trustee. The Court held in the Gowar v Gowar case of 2016 that the “overriding question is always whether or not the conduct of the trustee imperils the trust property or its proper administration. Consequently, mere friction or enmity between the trustee and the beneficiaries will not in itself be adequate reason for the removal of the trustee from office… Nor, in my view, would mere conflict amongst trustees themselves be a sufficient reason for the removal of a trustee at the suit of another”. This case made it clear that it is not that easy to remove a trustee and that the motivation should be sound for doing so. The Court has to be certain that the removal of a trustee will be in the interest of the trust and the beneficiaries. A beneficiary’s unhappiness with a trustee, and even inefficiency of the trustee, is not enough for a court to remove a trustee. More is required.

Considerations when defining trust beneficiaries

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Beneficiaries are those persons who are initially defined by the founder in the trust instrument and are subsequently selected by the trustees from time to time in terms of the trust instrument stipulations, set by the founder. The Trust Property Control Act does not define a beneficiary and is relatively silent as far as matters regarding the beneficiaries of a trust are concerned. The nature, number and rights of beneficiaries are accordingly determined by reference to the trust instrument and common law. If there is any conflict, the common law will prevail. An example is the Potgieter v Potgieter case of 2012 where despite the fact that the trust deed only required the consent of the trustees to amend the trust deed, the Court also required the consent of the beneficiaries who have received benefits from the trust.

Should you accept an appointment as independent trustee?

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Trustees are the guardians of the trust assets and have a duty to manage these assets in the best interests of the beneficiaries. SARS and creditors frequently make attempts to attack trusts, but this can be mitigated through the appointment of an independent trustee.

Which one wins: the trust deed, the will or the letter of wishes?

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People, generally speaking, do not pay sufficient attention to what they want to happen with their assets upon their deaths. This can be ascribed to estate planning not being given priority at a given time, or to people shying away from dealing with thoughts around death, or even ignorance. As the saying goes, ‘nothing is certain, except death and taxes’.

Case highlights key issues when creating a testamentary trust

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In a recent court case, van Rensburg v van Rensburg N.O. and Others (24 March 2020) issues around a testamentary trust were highlighted yet again. As the will of a deceased person forms the trust instrument, no further trust instrument is required to be lodged with the Master of the High Court. A will typically does not provide detailed provisions of how the trust should be administered. This often leads to issues arising at a later stage.

Assets and family outside SA, trusts and tax

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South African families who have created South African as well as foreign trusts may be living all over the world. Similarly, foreigners who have foreign trusts may be living in South Africa. The use of foreign trusts has been the subject matter of legislative intervention over the years. South African exchange controls were relaxed a number of years ago, allowing South Africans to invest offshore, many in so-called tax haven countries that impose zero or low rates of tax on trusts.

Paying tax on trust distributions you have not yet received?

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I recently received a phone call from a lady in her early twenties who was desperate for help. When she was a minor her parents registered her as a taxpayer and as trustees of their family trust distributed, but never paid, trust income to her in an attempt to avoid paying tax at a higher rate in the trust. Unfortunately they never paid the tax over to SARS on behalf of their minor child. When she started working after completing her university studies, she went to SARS to register herself as taxpayer, unaware that her parents have registered her years ago as taxpayer. She was confronted by SARS with a huge outstanding account of approximately R 5 million, consisting of outstanding taxes, penalties and interest. Although she has ever since tried to convince SARS that she was not the culprit, SARS insists that she owes the money to SARS. This causes her a lot of anxiety, as the family is no longer communicating to one another, her parents got divorced and the trust’s funds are depleted. There is no prospect that she will ever receive any cash from the trust in the form of distributions made to her, which remains payable to her. SARS keeps her liable for the outstanding amount. According to her, her parents “ruined her life”.