Trusts – its all in the name


As fashions come and go so it is in the legal and financial advisory world. Trusts, in the form of Business Trusts, Family Trusts, Charitable Trusts and Testamentary Trusts, have become remarkably popular. Even more so, in itself the manner in which Trusts have been marketed, has also been remarkable.

For all their supposed simplicity Trusts are a distinctly difficult entity to deal with. This is as much a function of their definition, which is deceptively simple, as it is a function of how people use them, or even abuse them.

The essential characteristic of a Trust is the placing of an asset in the care of a third party person (a Trustee) in order to ensure that it is available for the benefit of an identified person (a Beneficiary/ies). It is this "handing over", or literally the placing of your trust in another person to care for the asset in terms of the Founder's instructions which is critical.

It is also this "handing over" or "donation" that often causes problems, because the Founder or Donor might still try to exercise control over the asset, the beneficiaries and other elements of the Trust relationship. This undermines the concept of placing the assets in Trust and raises the question of whether the Founder / Donor in fact ever genuinely intended to hand over control of the assets.

Unfortunately the value of Trusts is only ever tested under difficult circumstances. This is because, as with legal entities, the separation of assets means that if the Donor becomes the subject of attachment orders or becomes involved in disputes relating to his/her creditors, the Donor can say that they have no assets as they belong to a Trust. In that moment the relationship between the Donor and the Trust is placed under scrutiny and it will be tested to see if the Donor really did hand over the control of the asset.

Examples of this scrutiny are for instance in cases of divorce, maintenance and forfeiture proceedings, insolvency, sequestration and liquidation proceedings, criminal investigations, and South African Receiver of Revenue inquiries. In each instance the process of determining whether the Trust is genuine or a sham has the potential to be a long and painful one.

With this in mind, and aside from issues such as tax liabilities and the requisite accounting assistance needed to maintain a Trust, a well run Trust complying with the terms of the Trust Deed is an excellent means of preserving wealth. It has longevity by existing beyond the lifetime of its Donor, it has separation of assets to protect the donated items from personal risks, and in the appropriate circumstances it could result in efficiencies of financial planning.

That said, it requires careful consideration of every individual or organisation's circumstances to determine whether a Trust is the best entity for what they are trying to achieve in the long term. It is not a generic, off the shelf structure of which a copy is whipped out for every client that walks through the door, but is something that needs to be carefully tailored to each specific client.

From the team.
MA Cooper Attorneys
With Energy and with Experience, giving you Expression