When it comes to planning about family succession matters — asset management and distribution — a lot of considerations are put in the mix.
TAKUDZWA HILLARY CHIWANZA
Introduction - What is a Trust?
While others still
opt for having their testamentary matters done through wills, which still
remains a safe way to deal with one’s property/assets upon their death, family
trusts have increasingly come into vogue because of their advantages over the
traditional way as will be outlined by this article.
Generally, a trust is a legal relationship created
between a founder and beneficiaries, administered by trustees. This is when a
founder transfers or donates their property to a third party [trustees] which
property is intended for the beneficiaries.
Thus,
a trust is a legal entity with its own separate and distinct rights, much like
a natural person or corporation.
It is
an entity that creates a legal relationship [or a fiduciary relationship] in
which one party, referred to as a founder/grantor, gives/donates to another
party, the trustee, to hold title to property/assets for the benefit of a third
party referred to as the beneficiary. Such a fiduciary arrangement allows for
the trustee(s) to hold, control, and administer assets on behalf of the
beneficiary/beneficiaries — and of course, for the benefit of the latter.[1]
So,
in a trust, there are three distinct parties — i.e, the founder/grantor (a
person donating or giving), the trustee (a person holding the property on
behalf of another), and the beneficiary (the person set to benefit from the set
up). Trustees are in charge of this relationship and should act in fiduciary
duty towards beneficiaries.[2]
If I
am the Founder of the Trust, do I still own the property?
What is key to note is that once the grantor
donates and trustee accepts the donated asset on behalf of the beneficiary, the
grantor ceases to have control over the donated asset. The asset becomes wholly
divorced from the grantor's estate and becomes the Trust's property which will
be used for intents and purposes for which the trust was formed.
An
example is where a parent (founder) transfers his farm to a trustee to be
administered on behalf of her children.
A trust
is brought into being, and is legally binding, through a deed of trust or
notarial deed prepared and attested to by a notary public, who is registered
legal practitioner. The notarial deed/deed of trust must be registered by the Registrar
of Deeds at the Deeds Registry — one copy must remain be at the Harare
registry, another copy at the Bulawayo registry, and another copy for the
trust.
The
Requirements of Setting up a Family Trust in Zimbabwe
As per the case Administrators, Richards v Nichol 1996 (4) SA 253 (C) 258E-F, below are the essential elements required for a valid trust:[3]There must be the intention to create a trust.
The intention must be expressed in a way
that creates an obligation.
The object of the trust must be lawful.
The trust property must be defined with
certainty.
The beneficiaries must be ascertained or
ascertainable, or the impersonal object must be clearly defined.
The Trustees must be identified in full
name, identity particulars and addresses registered with the Registrar of Deeds
It is
imperative to note that the trust deed should be signed by the Trustees before
a Notary Public.[4]
What
can be included in a Family Trust?
In a
family trust, an individual or couple can put any property/assets of their
choice, just as they would in a will. Some of the assets that can be mentioned
in a family trust include but are not limited to:
ü Houses
ü Land
ü Farms
ü Livestock
ü Motor vehicles
ü Company shares
ü Businesses
ü Life policies
ü Personal assets with sentimental value
Advantages
of Trusts over Wills in Family Succession/Estate Planning
Although
trusts are usually associated with wealthy people (you might have heard
something of a “trust fund baby”) and/or as a means for nefarious ends such as
tax evasion and under-reporting income taxes, they are a great tool when it
comes to estate planning and succession.
Unlike
wills, which have to be executed via public proceedings (the whole processes
being of public record), trusts are an entirely private and confidential
affair. The upsurge in the discourse of trusts over wills is an attestation to
this.
Trusts
are of course set up for different purposes, but a family trust proves to be an
immensely helpful estate planning tool/mechanism. Probably the most salient
feature of family trusts is that upon the death of a grantor (who in this
context is a parent/spouse), a trust is exempted from estate fees and other
costs related to probate.
In
such event, the asset management process is not cumbersome. A family trust is a
vehicle for managing the assets belonging to an individual or couple in a
timeous, private, less costly manner; specifying how assets are to be
distributed when that individual or couple dies.
Since
a trust is not subject to probate, many are finding it to be of great
preponderance as compared to wills. Probate is the entire judicial process
whereby the validity of a will [as a public document] must be proved in court;
it is the formal legal process that gives recognition to a will and appoints an
executor for the administration of the estate. This process is subject to the
oversight of the Master of the High Court.[5]
With
a family trust, there is no need to go through this process of probate, and
thus there is no need to pay the Master’s Fee and the Executor’s Fee. The
process of probate can drag for a long time — but with a family trust, this
does not happen. The distribution of assets happens forthwith, in line with the
specifications of the notarial deed of trust.
In
some instances, a will can be contested in court and some wills can be ruled as
invalid for failure to comply[6]
with the formalities prescribed in the Wills Act [Chapter 6:06]. In such a
context, the process to transfer and distribute assets becomes protracted and
even acrimonious as contested wills may lead to family disputes.
A
family trust outlines, with unequivocal specificity, how family assets are to
be invested, managed, and distributed; as well as the manner in which the
proceeds will be shared. A trust also protects the assets from being followed
after by creditors — since creditors cannot claim assets in a trust, when
either spouse drowns in heavy debts, the assets are sheathed from any judicial
process/litigation.
So
next time your family contemplates how to prepare for estate planning, assure
them that a family trust is a safe, reliable, effective medium to that end.
[1] J Kagan, ‘What Is a Legal Trust? Common
Purposes, Types, and Structures’, Investopedia https://www.investopedia.com/terms/t/trust.asp
Accessed 15 March 2023
[2] Ibid.
[3] ‘The Requirements to Set up a Family
Trust in Zimbabwe’ Kanokanga Law Firm https://www.kanokangalawfirm.net/articles/requirements-family-trust
Accessed 15 March 2023.
[4] ‘Benefits of setting up a family trust
in Zimbabwe’ Muvingi Mugadza https://www.mmmlawfirm.co.zw/benefits-of-setting-up-a-family-trust-in-zimbabwe/
Accessed 15 March 2023
[5] T Muhlwa ‘Family Trusts - An Effective
Vehicle to Managing Your Estate’ Mondaq. https://www.mondaq.com/wills-intestacy-estate-planning/903488/family-trusts--an-effective-vehicle-to-managing-your-estate
Accessed 15 March 2023.
[6] Ibid.
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