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Trusts and litigation

Columnists
LAST year, we discussed the concept of trusts as a means of safeguarding assets and property and limiting personal liability.

LAST year, we discussed the concept of trusts as a means of safeguarding assets and property and limiting personal liability.

Rights: MIRIAM TOSE MAJOME

Trustees typically have wide-ranging duties and rights depending on the nature and purpose of the trust
Trustees typically have wide-ranging duties and rights depending on the nature and purpose of the trust

There is a growing interest in establishing trusts, particularly family trusts, as people acquire property and increasingly become more cognisant of the need to safeguard it for posterity.

The growing interest in establishing trusts is a very encouraging development because it shows increasing awareness of rights and options that are available to people.

However, the sudden interest belies a lot of serious misconceptions and misleading assumptions about the uses of trusts.

The most common misconception is that a trust is a purpose vehicle for hiding property and assets from creditors, spouses, or other relatives.

Litigation and case law pertaining to trusts is admittedly still underdeveloped in Zimbabwe.

So we will discuss general litigation principles looking at other jurisdictions with more developed case law.

A trust

A trust is quite simply a legal arrangement to protect property or certain other interests for the benefit of third parties.

The trust property is administered for the achievement of the objectives that the trust is set up for.

There are as many different types of trusts as there are reasons for establishing them.

The trustees

The trustees are the natural persons, who are appointed in terms of the trust deed to manage the trust and facilitate fulfilment of the trust’s objectives.

The trustees must be competent and must formally accept the appointment. The duration and terms of their engagement is specified in the trust document.

The trust founder can also be a trustee but must maintain independence and always act in the best interests of the trust.

Duties of trustees

Trustees typically have wide-ranging duties and rights depending on the nature and purpose of the trust.

For example, in a family trust, trustees have rights to buy and sell assets, invest money, enter into various contracts including taking loans, investing trust funds, leasing, receiving donations and any other business that relates to the trust.

They may also be entitled to receive remuneration from the trust if it is specified in the trust deed.

The wide ranging obligations and duties accorded to trustees inevitably create interactions and relationships with third parties, which may lead to disputes or conflicts.

These could result in litigation, which requires the trust to institute or defend legal proceedings. The trust is sued and sues through its trustees.

Suing a trust

A trust is a legal entity, though it does not have legal persona. This means it is not regarded as an entity that can be sued or sue in its name.

This is where the misconception that trusts are above the law comes from. Trusts are not immune from the law and general law still applies.

Illegal acts remain illegal and cannot be condoned or excused by any law. A trust is represented by live persons the trustees who act on its behalf.

The trust deed outlines the duties and responsibilities of the trustees and one such obligation is the ability to sue and be sued as trustees.

A typical clause will state that: The trustees shall further have power to institute or defend legal proceedings and to sign all deeds and powers of attorney, and other documents that may be necessary in the premises.

Nothing, therefore, precludes a trust from being involved in litigation but through its trustees.

Trustees can also sue each other or they can be sued by the beneficiaries or other parties in the course of their duties.

Receiving fraudulent donations

Contrary to popular belief, a trust is not a vehicle to hide property from creditors or other interested parties.

The mistaken belief is that once property is put into a trust it cannot be touched and is beyond scrutiny.

This is simply not true as no such legal provision exists. What happens if property is donated and received in pursuit of an illegal motive or other devious scheme which cannot be condoned by the law?

The property can still be retrieved and extricated even behind the layers of protection seemingly afforded by a trust.

Even when real rights in immovable property have been transferred, the transfer can be reversed if the claimant proves fraud motivated the transfer and that the transferee was aware of the fraud.

The trustee could also have been aware of any other legal obligations and claims on the property, but decided to accept the donation into the trust.

Precedence from the Supreme Court supports this position pertaining disputed property and transfers where real rights have been transferred.

So, a trust is not an ideal safe haven for hiding property because if it ever came to that the property can be retrieved in pursuit of a legal solution.

Typical examples are if a judgment debtor, fearing to have his property attached, donates the property into a trust to hide it from being attached and sold in execution.

Also, where a spouse establishes a trust and transfers property while knowing the other spouse as a genuine claim in the property.

The trustees will be responsible and answerable to any litigation as a result. It is advisable for people with any such claims against trusts to pursue them and help develop the case law.

Miriam Tose Majome is a lawyer and a teacher. She can be contacted on [email protected]