A recent webinar hosted with Business Report dealt with the importance of proper administration of a trust to prevent a trust from being labelled someone’s ‘alter ego’ (an extension of oneself), whereby the trust form is disregarded when is comes to claiming money from a person, resulting in the inclusion of the trust’s assets in calculating a claim typically against a trustee.
The trustees are required to administer the trust in terms of the law and the provisions of the trust instrument and act with the highest degree of diligence and caution. Trustees are required to be more careful and prudent with the affairs of the trust than they would be with their own affairs.
All trustees must act together when making decisions that affect the trust, not simply the majority of the trustees. It is not the majority vote, but the resolution (signed by the entire complement of trustees) that binds a trust.
The Master of the High Court can play a role in ensuring that the trustees of a trust conduct themselves in a proper way in accordance with both the law and the trust instrument. In certain instances the Master may even remove a trustee from office.
It is well known that trusts and estates have been under the magnifying glass of the South African Revenue Service (SARS) for a while now. This led to the introduction of an anti-avoidance measure (Section 7C of the Income Tax Act) effective from 1 March 2017, whereby SARS accesses growth in a trust. SARS wanted a way to access growth in assets, which people historically deliberately moved into a trust and thereby “froze” the value of the estate for estate duty purposes.
The real life story shared in this article provides certain lessons for spouses and partners where trusts are involved. Although trusts have been around in the world for almost a thousand years, it remains one of the most misunderstood and sometimes abused vehicles where families’ assets are housed.