By Tsungirirai Marufu
People yearn to acquire as much wealth as is possible, but few have consideration of what would happen to that wealth upon their demise. The manner in which one’s estate is distributed depends on whether they had properly planned for such a time. Pleasing to note is the fact that there are many legal mechanisms in place which one can use to protect his/her assets and wishes even after their death. One such mechanism is the creation of a trust.
This article looks at the meaning of a trust, different types of trusts available (with a focus on family and business trusts). Registration of trusts, the turn-around time as well as the advantages of registering a trust will also be deliberated with reference to Zimbabwe.
What is a trust?
A trust exists when the founder hands over his/her property to be administered by the trustee for the benefit of the beneficiary. For example, a person may hand over his/her farm to be administered for the benefit of his/her children until they reach a certain age. In simpler terms a trust may be defined as a legal relationship that:
- has been created by a person (this person is known as the founder, donor or settlor);
- through placing assets under the control of another person (this person is known as the trustee);
- during the founder`s lifetime (an inter vivos trust) or on the founder`s death (a testamentary trust, also known as a will trust);
- for the benefit of third persons (the beneficiaries).
Apart from estate planning purposes, a trust can be used to protect assets from a beneficiary’s personal creditors and misfortunes. A trust can also be used for business purposes, instead of the use of a company, close corporation or partnership. A trust is preferred because of its flexibility and lack of statutory formality in its creation, administration and operation.
Trust deed, deed of trust or trust instrument
Unlike a company or close corporation which are creations of statute, a trust is a creation of a document known as the trust deed, deed of trust or trust instrument because, generally speaking, a trust is created either by a contract (an inter vivos trust) or by a will of a testator (a testamentary trust).
Types of trust
Inter-vivos trust is a written document in which a person’s assets are provided as a trust for the individual’s use and benefit during his/her lifetime. Such assets can only be transferred by a successor trustee to the beneficiaries upon the trustor’s death.
Testamentary trust, also known as a will trust specifies how the assets of an individual are to be designated after the individual’s death.
Revocable trust refers to a trust that can be changed at any stage of the trustor’s lifetime. This may be influenced by several factors such as divorce, change in mind or the need to acquire or dispose of assets.
Irrevocable trust is a trust that cannot be altered once established. In other words, once the trustor donates to the trust he/she cannot reverse that act. An irrevocable trust is most desirable as it cannot be easily altered and contains assets that have been permanently removed from the trustor’s possession.
Formation of a trust
- The following are some of the essential requirements for the creation of a valid trust:
- The founder must have the purpose or intention to create a trust;
- The intention must be clearly expressed in writing;
- The property/assets involved must be clearly defined;
- The objects of the trust must be sufficiently stated with clarity and certainty;
- The objects of the trust must be lawful and legitimate.
For one to create a trust they need to provide the name of the trust, names and dates of birth of trustor(s), trustees and beneficiaries to a registered notary public of their choice for purposes of drafting. One must also provide the objectives of the trust.
A deed may be submitted for registration with the Registrar of Deeds as a matter of procedure, but it is not a legal requirement to do so. A trust deed is created upon execution before a notary public. The turnaround time for registration in Zimbabwe is ordinarily seven working days.
Who can be appointed a trustee?
- Persons of sound mind
- A person who is not a witness to a will creating such a trust.
- A person who is not excluded by the trust deed.
- Somebody who is not insolvent.
- A person who has not been removed from an office of trust due to misconduct.
- A trustee must agree or accept the office. A person cannot be forced to act as a trustee against his/her own wishes.
Family trusts and their benefits
Family trusts are ancient legal instruments — dating back to feudal times, in fact— that are sometimes greeted with scorn, due to their association with the idle rich. But these trusts are an effective tool for managing one’s assets. If run properly, family trusts can provide security for one’s wealth which can benefit future generations.
- Tsungirirai Marufu is a lawyer in private practice. To comment on this article you can contact her on email@example.com