The main reason to set up a trust is to protect assets for the benefit of someone, whether it is you, a spouse, minor children, incapacitated persons or members of the public (charitable trust). A trust should never be registered with the sole purpose of trying to save on taxes as tax laws can change.
However, if a trust deed is drafted properly, the wealth plan structured effectively and the investments aligned accordingly, it may result in a saving in estate duty and capital gains tax in the event of death. It is for this reason that a trust has for many years been a popular tool used by estate planners to peg the value of assets. Assets are transferred to the trust during the settlor’s life by way of a donation, loan or both which results in the value of the assets growing in the trust as opposed to in the settlor’s personal estate. As these assets do not belong to the settlor any more, they are protected from the settlor’s creditors. This is often a solution for individuals who have business interests and wish to keep their personal assets separate to that of the business.
It is important that the founder selects the right trustees as they will have the power to deal with the assets in the trust at their discretion. A trustee has many fiduciary duties and the founder must ensure that the chosen trustees have the required qualifications and experience to fulfil this role. The trustees must comply with the Trust Property Control Act and be able to understand and adhere to the case law-failing to do so, could have severe implications for the beneficiaries. As trustees can be held personally liable for losses, it may not be fair to expect people, for instance family members and friends, to act as a trustee if they have no idea what the role entails. Baraza Wealth™ can provide guidance to trustees to ensure good governance.
Duties of a trustee:
The duties of a trustee are wide but can be summarised as follows:
- Knowledge and understanding the trust deed;
- Control of trust property;
- Manage risks;
- Administration, disposal, investment and general maintenance of trust assets;
- Proper record keeping of transactions and taking of minutes;
- Preparation and timeouts submission of income tax returns;
- Avoid conflict of interests;
- Act with due care and diligence;
- Exercise discretion;
- Maintain a bank account;
- Be accountable;
- Stay up to date with legislative changes; and
- Keep abreast of economic developments.
