Monthly Archives: January 2013

MARRIAGE AND TRUSTS

When determining how to structure your Trust Deed one needs to realise the implications that the marriage system in existence between the Trustees has on how the trust is created.

Marriages are governed by the Matrimonial Property Act 88 of 1984. This Act allows for three different marital systems. One can either marry in community of property, out of community of property with the application of accrual or out of community of property without the application of accrual. If one is married in community of property the two estates are amalgamated into one. If one is married out of community of property then the spouses retain their separate estates. When establishing a trust, however, the assets owned by the trust do not form part of either estate and therefore will not be taken into account in any settlement agreement or winding up of a deceased estate, provided of course that the trust is not a sham Trust. When creating trusts our concern with how you are married, therefore, is only for purposes of determining who will be a Trustee on the Trust and as a result retain control. In most cases the joint household assets will be moved into the Family Trust. By moving the assets of the Trust each spouse is divested of ownership of those assets (whether they were jointly owned in undivided shares or were individually owned). In order to retain management over those assets therefore each spouse will need to be a Trustee on the Trust.

There are circumstances, however, when it is advisable that only one spouse be appointed a Trustee on the Trust. If a trust is created for purposes of investing in property and the Trustees are married out of community of property, it is advisable that only the spouse with the greater income be appointed as Trustee. In this way any exposure attached to the signing of surety lies with only one spouse and the spouse who is not a Trustee is protected against such risk. Should the spouse who is a Trustee then be sequestrated the other spouse can then be appointed a Trustee in his/her place and thus keep control over the assets in the trust within the immediate family unit. Another instance where only one spouse is appointed would be in a Business Trust. Often in an ante-nuptial agreement business interests of the parties are excluded from the accrual. The way in which to exclude your business interests from a claim from your spouse in a trust structure is to not have your spouse appointed as a Trustee.

The trust structure can be an even bigger advantage if one is married in community of property. Due to the two estates being amalgamated into one, the assets of one spouse are the assets of the joint estate and more importantly the debts of one spouse are the debts of the joint estate. It follows therefore that if one spouse goes insolvent then so does the other spouse. By moving ones assets to the trusts they are therefore protected and one spouse, through a bad business decision or just bad luck, cannot influence the joint wealth as it is housed in the Trust. Furthermore, on death the estate is frozen during the winding up process. This process can, if it is a large estate, take up to 2 years to complete. During this period the surviving spouse and children have no or little access to the estate. This is made worse if one is married in community of property as the joint estate is frozen meaning that the surviving spouse’s assets are also frozen! If the estate is in Trusts then, financially, the death of one spouse has no impact on the surviving spouse and children because they have immediate access to the assets and cash held in the Trust.

In summary by moving ones assets into trust does not invalidate the marriage system between the spouses but because there are no assets left in the spouses’ personal capacity the system in which the spouses are married becomes irrelevant as any division of assets on divorce or death will be dealt with through the Trust and therefore governed by the Trust Deed itself and the Trust Property Control Act 57 0f 1988. Keep in mind however, if you are not a Trustee on the Trust you do not have any management over distributions and/or claims to the assets (or the use thereof) from the Trust.

OFFERS TO PURCHASE AND THE AUTHORITY TO ACT

In terms of the case, Thorpe vs Trittenwein [2006] SCA 30 (RSA), the need to obtain all trustees authority (or majority if required by the deed) to enter into an offer to purchase was highlighted. In referencing section 2 (1) of the Alienation of Land Act 68 of 1981, the courts held that the agent acting on behalf of the entity (in this case a trust) was required to have the necessary authority to do so in writing.

Section 2(1) of the said act states that “no alienation of lands after the commencement of this section shall, subject to the provisions of Section 28, be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority”

The courts held that you are to refer to the Deed itself to determine the requisite authority and then to have that authority reproduced in writing. What is even more important is that the court held that the requisite authority could further not be ratified. The courts argued that because the trustee did not act with the necessary authority, the agreement of sale was void ab initio (from inception). It follows therefore that a transaction void ab initio (i.e defective from inception) cannot be ratified.

The administrative implications of this case is that when entering into any transaction relating to the alienation of land you as trustee must have the necessary authority to do so. Reference must be made to your deed in determining the requisite authority. Given that most property trusts are established with only two trustees, namely yourself and the independent trustee it is imperative that ALL trustees give the requisite authority. The implication of this, therefore, is that on the signing of any Offer to Purchase, the independent trustee must be informed in order that it may draft and sign a resolution authorizing you to enter into the Offer to Purchase. A generic property resolution cannot serve your purpose in this regard as this is a clear indication to the courts that you are acting independently of your independent trustee and therefore separation between yourself and the trust is lost and the courts are able to attack same.

In summary therefore, we advise that whenever you enter into an offer to Purchase obtain a resolution from all trustees authorizing you to enter into the particular transaction and ensure that the resolution is signed at the time of entering into the transaction.