How to protect a trust The Offshore Perspective Sham or not…. Anton Maskowitz antonm@spi.sanlam.com 1 Agenda • • • • • • The basics Sham vs Alter Ego Settlor/Beneficiary control Reserved Powers Communication Conclusion Anton Maskowitz 2 The Basics • Trust Deeds • • Declaration Deed Settlement deed • Blind Trusts • Charitable Beneficiaries • Protectors (SA specific) • • • Co- Trustee/excess powers Settlor Independence Anton Maskowitz 3 Sham vs Alter Ego • • • • • Concept of a Sham Trust Not recognised in SA (yet) Requirements Consequences SARS, Divorce settlements and maintenance claims? Anton Maskowitz 4 Settlor/Beneficiary Control • Treating trust as bank account • “My Trust” • Managing/Controlling Trust Investments • • • • Reserved Powers Investment Managers/Advisors Directors on underlying Companies Settlor/Beneficiary also Protector Anton Maskowitz 5 Communication • Steer clear from “instructing” trustees • Know your trustees and vice versa • Annual Trustee Meetings • Update trustee re personal and family circumstances • Review Letters of Wishes regularly Anton Maskowitz 6 Conclusion • Don’t give without giving • Independent/Corporate Trustee in well regulated environment • Understand and appreciate Trustee Powers at outset • Steer clear from “instructing” trustees • Care : Divorce Settlement/Maintenance claims and SARS not reliant in Sham, will most likely succeed on alter ego. Anton Maskowitz 7 The effect of marital regimes on wills and estate planning Till death Tiny Carroll or divorce us do part estate planning Distribution Accumulation Preservation estate planning : four estates PERSONAL TRUST ASSETS ASSETS CONTRACTUAL RETIREMENT FUND BENEFITS ARRANGEMENTS estate planning : life happens dependents marital regime trust structures emigration insolvency business structures offshore divorce retirement disability Three vital questions Who qualifies as a spouse ? Which marital property regime? Are you a surviving spouse? Personal assets : Exclusion clause I direct that the inheritance devolving upon any beneficiary under this will as well as the proceeds, the reinvestment of such proceeds and the income thereon shall be free from the legal effects, including any accrual system, of any present or future marriage of such beneficiary and shall also be protected against the creditors of their spouses. - Accrual marriages - In community marriages - Section 21 of the Insolvency Act Personal assets : accrual claim - Which spouse has the claim? - Liquidity? I hereby wish to place on record that in the event of me predeceasing my spouse, and should my estate be entitled to monies from my spouse, by virtue of the application of the accrual regime to our respective estates, then my spouse shall not be required to realise any assets or to transfer any assets in specie to the FAMILY TRUST, but the amount owing, if he so chooses, shall be reflected as a debt owed by him to the said Trust, which debt shall not accrue any interest and shall be repayable without fixed date. Contractual arrangements: Buy and sell agreements - Marriages in community of property - Joint powers of administration - Section 15(2)(c) – requires written consent - Section 15(6) – 15(2)(c) does not apply where and act is performed in the ordinary course of profession trade or business. 8 Key Questions 1. 2. 3. 4. 5. 6. 7. 8. Do you have a strategic estate plan in place? Do you have a signed, and up to date will in place? Will “your” trust stand up to scrutiny? Are your buy-and-sell arrangements going to protect you? Are your policy beneficiary nominations up to date? Is there sufficient liquidity in your estate? How will your retirement fund benefits be dealt with? Will your family know what to do? How to protect a trust The local perspective Louis van Vuren CFP®, FPSA®, TEP louis@finlac.com Louis van Vuren 17 Understand what is a trust – and what it is not • The trust concept • Parties to a trust • The trust deed Louis van Vuren 18 The trust concept • The making over of ownership of or control over assets to a person (trustee) for the benefit of another (the beneficiary). Sec 1 of Trust Property Control Act, 57 of 1988 • “The core idea of the trust is the separation of ownership (or control) from enjoyment.” Landbank v Parker [2004] 4 All SA 261 (SCA) at par 19 • “Except where statute provides otherwise, a trust is not a legal person. It is an accumulation of assets and liabilities.” Landbank v Parker at par 10 Louis van Vuren 19 The parties to a trust Founder Trustees The Trust Estate Estate Owner Assets & Liabilities Income beneficiary Capital beneficiary Income beneficiary Louis van Vuren Capital beneficiary 20 The trust deed • The trust deed is “… is the trust’s constitutive charter. Outside its provisions the trust estate can not be bound.” Landbank v Parker at par 10 • A trustee can do anything legal when empowered by the trust deed, but has no powers not explicitly or implicitly authorised by the trust deed or by law. • Sometimes a trust deed can be amended and the deed will prescribe how. If the founder is alive it can in any event be amended. Louis van Vuren 21 How to protect a trust – as founder / estate owner • Ensure that the trustees are independent of thought and behaviour. • Accept that you don’t own the assets any more – they belong to the trustees now. • Do not insist on the reservation of special powers. • Don’t put pressure on the trustees to act in your interest in breach of their fiduciary duty towards the beneficiaries. Louis van Vuren 22 How to protect a trust – as trustee • Study the trust deed. If you don’t, you:  Are not acting in the best interests of the beneficiaries;  Can be held liable because you did not do what you should have. • Understand your duties and powers – IT IS YOUR DUTY !  Fiduciary duty is overarching (sec. 9 of the TPCA);  Care, diligence and skill expected of a person who manages affairs of another  Duty to apply your mind independently.  Don’t be a “tame” trustee Louis van Vuren 23 How to protect a trust – as trustee (cont.) • Act jointly with other trustees – follow the trust deed.  There is no “automatic” provision in law for majority decisions. If the trust deed does not provide for it, decisions are by consensus. • Ensure clean, effective administration.  Keep proper accounts. No requirement for audited financials, but make sure there are annual accounts.  Ensure separate income and capital accounts.  Ensure proper records are kept – minutes of meetings.  Ensure proper resolutions are taken and recorded – follow the trust deed religiously. Louis van Vuren 24 How to protect a trust – as trustee (cont.) • Ensure clean, effective administration. (cont.)  Ensure proper and effective control over trust assets – don’t allow the previous owner to carry on controlling the assets.  Ensure proper investment of trust assets – take heed of the investment powers in the trust deed.  Be aware of the requirements of relevant legislation.  Avoid conflicts of interest and declare to co-trustees if present.  Ensure tax affairs are in order – don’t mess with SARS.  Attribution equals vesting – ensure it is recorded as such. Louis van Vuren 25 The Protector in South African Trust Law? • In UK and offshore destinations – protector to ensure trustees act in best interests of beneficiaries and to get arms length away from founder/estate owner. • SA trust law does not know this phenomenon. • The issue of independence addressed in Parker case – although not a requirement that there must be an independent trustee. • My view – just make sure trust deed and the trustees contribute to independence from the founder/estate owner. Louis van Vuren 26 Questions Louis van Vuren 27 Trustees to act jointly Even where majority decisions are provided for – beware! Steyn N.O. & Others v Blockpave (Pty) Ltd [2010] ZAFSHC 134 AJ Steyn CP Pretorius ME Moolman Dries Steyn Trust Rental agreement in arrears Blockpave (Pty) Ltd P Steyn AJ Steyn J J Steyn Was not invited to trustee meeting where decision was taken to sue Blockpave (Pty) Ltd. Fixed Property  Court found trustees not properly before court, as Moolman was not in position to take part in decision to sue. Return Louis van Vuren 28