Newsletter 53 (Feb 2021)
Historically, February is the month of purification, but it is also the month of love and romance. We hope you had a great month, celebrating all the special people in your life. But, with time being the fleeting thing it is, the months just come and go.
It is not always easy to make lemonade when life throws you lemons, but it is always worth it to try. Try and try again to persevere before giving up too soon.
“Through perseverance, many people win success of what seemed destined to be certain failure.”
“Don’t be discouraged. It’s often the last key in the bunch that opens the lock."
“Many of life’s failures are people who did not realise how close they were to success when they gave up.”
Even when things are at their worst, be thankful for the bad things in life, because they open your eyes to see the good things you were not paying attention to before.
“Perseverance is not a long race; it is many short races one after the other.”
“Great works are performed not by strength but by perseverance.”
SIGNED AND CANCELLED WILLS
Please remember to return original signed Wills to EFBOE for safekeeping. If a Will is not taken up by the client, please inform us as to limit unnecessary follow-up of outstanding Wills.
SPECIALIST SERVICES: TRUSTS
EFBOE is proud to announce its strategic collaboration with Sasfin Fiduciary Services. SasfinFiduciary Services will enhance EFBOE’s offering with regard to tax advisory, complex local and cross border estate planning, inter vivos trust structuring, and trust administration. For more details about these services, please contact your dedicated marketer at EFBOE.
KEY ISSUES WHEN CREATING A TESTAMENTARY TRUST
Read more about this in our next edition
KNOW THE CONTENT OF YOUR TRUST DEED
Many people do not read instruction leaflets or owners’ manuals when they buy new appliances. These are after all material possessions which will probably only last a few years anyway, so one can still afford to run the risk of not knowing all the details.
It is astonishing though, that when it comes to the content of a trust deed, people put the entirety of their wealth into a trust structure and then sometimes neglect to ensure that the trust deed contents are factually correct, remaining relevant over time, and expressing their wishes properly.
Even though trust deeds can be lengthy and complicated, it is worth the time and effort to ensure that everything is in order. Errors in trust deeds only surface once creditors, a soon-to-be-ex-spouse, the South African Revenue Service (SARS) or such, choose to attack the trust deed when it seems to work in their favour to disregard the trust.
There are essential elements for the creation of a valid trust. These were confirmed by the high court back in 1996. If any of these elements are missing, then it means that a trust has not been created, even if the parties think they have created a “trust” and even registered it at the Master of the High Court. In the legal sense of the word, it does not infer that it is a trust. The essential elements are:
A clear and explicit intention on the part of the founder to create a trust.
It is simply not true that a founder cannot simultaneously hold the role of trustee and/or beneficiary. Through the definition of a trustee in the Trust Property Control Act, a trustee is “any person (including the founder of a trust) who acts as trustee”, the Act acknowledges the fact that the founder can be a trustee as well. The question that must be asked of the founder is if there was a true intention to create a trust for the benefit of the beneficiaries. This action is manifested by the handing over of assets to the trustees by the founder by virtue of a trust deed.
The founder must express his/her intention in creating a trust deed in such a way as to create an obligation.
The founder’s intention for creating a trust is the deciding factor on whether an obligation was created or not. If the founder created the trust to administer the property or merely using the trust as a means through which to conduct his/her personal affairs, it will determine the real intention. The courts will not simply look at the trust deed, but also at the substance of the arrangement. If the courts find that the founder did not intend to give up control over the assets, the trust may be disregarded.
Indications that the founder did not really intend to create a trust will be reserving rights and powers to retain control over trust assets: the right to amend the trust deed without deferring to the trustees, reservation of decisions for the founder to deal with trust assets and a testamentary reservation clause, in terms of which a right is retained by the founder to dispose of trust assets in his/her Will. Should this be the case, the trust will be invalidated.
Trust property should be clearly and certainly defined so that it can be easily identified.
Trust property is controlled by the Trust Property Control Act. An asset-register in which the description, value and location of each asset is recorded, must be maintained for the trust. The financial records should also clearly indicate which properties are held by the trustees.
Beneficiaries (or object of the trust) must be clearly and certainly defined, to be easily identified.
The purpose of a trust is to benefit some persons or object, such as a charity. A trust without identifiable beneficiaries is invalid. Therefore, there must be a “person” identified by name and preferably an identity number, or a “class of persons” also identifiable through the description of such a class, such as “the descendants of”. The trustees should also not have the power to appoint any beneficiaries.
The trust object must be lawful.
It is left to the interested parties in a trust to establish if the trust object is unlawful as the Master of the High Court does not censor a trust’s object. Generally, the object of the trust is stated in the trust deed and those entities/persons that deal with the trust will be able to establish this from the trust deed. For example: “To hold trust assets for the benefit of the beneficiaries”.
Property must physically be transferred to the trustees (discretionary trust) or beneficiaries (vested trust).
Companies can exist without assets, but a trust cannot. If a founder fails to hand over control of trust property to the trustees, the coming-into-operation of the trust may be delayed.
Some people may interpret the principle established in a 1994 case to indicate that a physical initial donation to establish a trust do not have to be done immediately, as long as there is an obligation to make such an initial donation in the trust deed, which is then later made. To avoid attacks from SARS and creditors, it is recommended to rather make the initial donation as soon as the trust is registered.
In the application of the Substance Over Form Principle in South Africa, the trust should not only legally own the trust property, but also indicate clearly from the actions and behaviour of the trustees and the founder that the assets in substance are managed by the trustees, and not by the founder, or only one of the trustees, Otherwise the legal form of the trust will be ignored, the trust will be disregarded and the assets will be regarded as belonging to the founder, thereby neutralizing the benefits sought when first establishing the trust.
There are circumstances when it may be impossible to change provisions in the trust deed, e.g. when the founder dies. Therefore, it is imperative to review a current trust deed and the execution thereof, to ensure that all the above requirements are adhered to and the necessary changes are made before it is too late.
Credit to Phia van der Spuy, founder of Trusteeze.
LULU, THE MILLIONAIRE DOG
Charles William “Bill” Dorris died on 24 November 2020, aged 83 and unmarried. But Dorris had a soft spot for his 8-year-old border collie, Lulu. He regularly left the dog with his friend, Martha Burton, because Dorris was often travelling.
To Martha’s amazement, Dorris left $5 million in his Will to Lulu to be transferred to a trust to be created on his death. While the dog will be provided for, Lulu must remain in Martha’s care. Martha will be reimbursed for expenses to care for Lulu. Martha said: “I don’t really know whatto think about it, to tell you the truth. He just really loved the dog.” Martha said she knows there is no way she could spend $5 millionon Lulu, but added, “Well, I’d like to try.”
The estate is currently under probate to prove to a probate court that the Will is genuine.
Until Next time!
The “Let’s Talk EFBOE” Team