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Transcript of WELCOME - STEP · welcome to namibian trusts ... trust as alter ego (1) “alter ego” = control /...
WELCOME TO
NAMIBIAN TRUSTS – TO TRUST OR
NOT TO TRUST PRESENTED ON 5 APRIL 2016
BY
PROFESSOR WILLIE M VAN DER WESTHUIZEN
MILLERS INC
GEORGE
Member of the PhatshoaneHenney Group
INTRODUCTION
• From a South African perspective the Namibian
trust law is a bit like Michael J Fox’s movie
“Back to the future”
• To understand the future of the Namibian Trust
Law one has to move a bit back in history
• The previous trust legislation of South Africa
namely, The Trust Moneys Protection Act, 34 of
1934 is still applicable in Namibia which was
administered by South Africa until its
independence in 1990.
Millers Attorneys George © member of PhatshoaneHenney Group 2
INTRODUCTION
• This does not mean that the Namibian
legislation is outdated. The question is more a
matter of whether the newer RSA legislation is
an improvement – The answer falls outside the
scope of this presentation
• The differences, although sometimes subtle, is
important to note.
• We will thus in this presentation concentrate on
the differences / similarities, some pitfalls &
common errors, application possibilities & the
tax implications and then decide whether to
trust or not to trust the Namibian Trust.
Millers Attorneys George © member of PhatshoaneHenney Group 3
Millers Attorneys George © Member of the PhatshoaneHenney Group 4
FORMAT Focus will be on practical discussion and points
substantiated by principles, case and relevant
law and divided in:
1. PART 1 : THE DIFFERENCES / SIMILARITIES,
SOME PITFALLS & COMMON ERRORS,
APPLICATION POSSIBILITIES & THE TAX
IMPLICATIONS
2. PART 2 : ADDITIONAL REFERENCE SLIDES
AS FURTHER READING MATERIAL -- NOT
DISCUSSED (AS SUPPLEMENTED BY THE
BIBLIOGRAPHY – SLIDE 54)
PART 1A
DIFFERENCES
&
SIMILARITIES
Millers Attorneys George © Member of the PhatshoaneHenney Group 5
UNIQUE OR HYBRID TRUST
LAW SYSTEM IN NAMIBIA &
THE RSA
Millers Attorneys George © member of the PhatshoaneHenney Group 6
NAMIBIA IS A CIVIL LAW
COUNTRY • But the Common Law (as opposed to statutory law) of
Namibia applicable to trusts is the same as for South
Africa
• Thus the trust creation and administration as well as the
powers and fiduciary duties of trustees are the same,
save for some adaptations in respect of local Namibian
legislation.
• The Namibian trust law is, as said, regulated by the Trust
Monies Protection Act of 1934, which Act was repealed
in South Africa in 1989 and this causes some important
differences (but also some unsuspected similarities)
Millers Attorneys George © Member of the PhatshoaneHenney Group 7
Millers Attorneys George © member of the PhatshoaneHenney Group 8
UNIQUE LOCAL TRUST LAW (B2)
ROMAN DUTCH LAW
CIVIL LAW COUNTRY ENGLISH LAW
COMMON LAW COUNTRIES
TRUST IN WIDE SENSE TRUST IN STRICT SENSE
NAMIBIAN / RSA TRUST LAW
REAL TRUST “BEWIND” TRUST
TRUSTEE “LEGAL” OWNER CURATOR / EXECUTOR
ADMINISTRATOR/CONTROL
BENEFICIARY :
ONLY PERSONAL RIGHT
BENEFICIARY :
OWNER WITH VESTED RIGHT
NAMIBIA IS A CIVIL LAW
COUNTRY • As in the RSA the typical discretionary trust can also be
created in Namibia by making a small donation of say
N$100 to the trustees (the Namibian dollar is coupled to
the SA Rand) whereby the beneficiaries then possess
merely a spes (hope) to receive benefits from the trust
via the exercising of their discretion by the trustees
• In this way the trust is the ideal protective vehicle for the
beneficiary who may find him- or herself in financial
difficulties or who is experiencing risks because of
relationship problems.
Millers Attorneys George © Member of the PhatshoaneHenney Group 9
NB FORMALITIES IN RE CREATION (B9.2.2*)
• In Namibia however, where the donation exceeds a N$1000
the deed of donation, and thus the trust deed will require
specific important formalities
• Until 1956 a donation, whether executed or not, was
revocable in regard to the amount thereof in excess of
£500 (R1000) unless it was registered in the deeds office or
embodied in a notarial deed.(See LAWSA vol 8 part 1 par
276)
Millers Attorneys George © member of the PhatshoaneHenney Group 10
NB FORMALITIES IN RE CREATION (B6.1 & B9.2.2*)
• Thus prior to the enactment in the RSA of section 5 of the General Law Amendment Act 50 of 1956 it was required of donations of more than £500 (R1000) to be notarially executed. Section 5 states that “no donation concluded after the commencement of this Act shall be invalid merely by reason of the fact that it is not registered or notarially executed”.
• This section 5 was however not made applicable to Namibia where currently donations of more than N$1000 is still required to be notarially executed
• B6.1 & B9.2.2 = Wills & Trusts see Bibliography at end
Millers Attorneys George © member of the PhatshoaneHenney Group 11
PART 1B
SOME PITFALLS /
COMMON ERRORS,
Millers Attorneys George © Member of the PhatshoaneHenney Group 12
MOST COMMON REASONS
FOR INVALIDITY THAT ARE
STILL GREY AREAS IN NAMIBIA
1. Formation of a trust with only oneself (See slide
65)
2. Object too vague; changing object (Slides 66-69)
3. Exceeding the specific power of appointment
(Slides 70-73)
4. Variation where beneficiaries have accepted
benefits– certain areas still uncertain despite
Potgieter-case (See slides 74-81)
Millers Attorneys George © member of the PhatshoaneHenney Group 13
INVALID FOUNDING ACTS (1) (B6.1*)
IRREPARABLE
• Unilateral act by founder not permitted in Namibia & RSA Agreement NB between founder and trustees (founder cannot act alone) (Cameron 144 & B7.1 See also Crookes v Watson 1960 1 SA 277 (A) at 298)
• Trust property must be clearly described:
i.e. “I hereby donate N$100 to the trustees” and the founder must be divested or be bound to be divested of at least a part of the legal proprietary power over the trust property (i.e. the N$100) (Cameron 6 B7.1)
• B6.1= Wills & Trusts see Bibliography at end
Millers Attorneys George © member of the PhatshoaneHenney Group 14
INVALID FOUNDING ACTS (2)(B6.1*)
IRREPARABLE
No divesting of property by founder ( B6.1/ B7.1* & Cameron 6 )
• “A trust is hereby created.” - No indication of how it is created—possible in certain Common Law countries
• In Namibia & RSA “Founder must be divested or be bound to be divested of at least a part of the legal proprietary power over the trust property” (Cameron 6)
Millers Attorneys George © member of the PhatshoaneHenney Group 15
INVALID FOUNDING ACTS (3) (B6.1*)
IRREPARABLE
• Notarialy executed trust deeds--- check paper
trail for human errors i.e. absence of names or
signatures etc insufficient power of attorney
Remember notarial execution not a requirement
– only when deed requires it for variation and
founder is deceased (See also B9.1.2)
• Provide for where founder is required for
variation of deed and has since creation of trust
become mentally incapacitated or if founder is a
company and it has since creation of trust been
deregistered
Millers Attorneys George © member of the PhatshoaneHenney Group 16
Millers Attorneys George © member of the PhatshoaneHenney Group 17
INTER VIVOS TRUST akin to
STIPULATIO ALTERI or not? (B5.2*)
• Crooks v Watson 1956 1 SA 277 (A) “The contract he enters into may, therefore, properly be regarded as a species of a contract for the benefit of a third party” per Steyn JA (as part of majority judgment) at 305E-F and reconfirmed in Hofer v Kevitt 1989 1 SA 382 (A) at 386D-E
• Potgieter v Potgieter 2012 1 SA 637 (SCA) (Delivered on 30 Sept 2011) confirms stipulatio alteri principle applying but WT & others v KT (933/2013) [2015] ZASCA 9 (13 March 2015) & other cases describe it as an institution sui generis
• SAME DEBATE ALSO IN NAMIBIA • * Pace & Van der Westhuizen Wills & Trusts & see Du Toit 2.3.3.2
Millers Attorneys George © member of PhatshoaneHenney Group 18
INTER VIVOS TRUST akin to
STIPULATIO ALTERI or not? (B5.2*)
• Various theories in re application to trust figure
• Olivier P A in his doctoral thesis entitled “Aspekte van die
reg insake Trust en Trustee met besondere verwysing na
die Amerikaanse Reg” (sic) (University of Pretoria) at 308
and 319-325 summarises the different views and states that
it varies from Murray’s (1958 Acta Juridica 64) total rejection of
equalling the trust figure with the stipulatio alteri on the one side to
total acceptance by Swanepoel (Oor Stigting..84 ev) on the other side,
with in between the views of Pollak (1956 Annual Survey 179-181),
Joubert (1956 THRHR, 150), Bayer (1956 SALJ 255) and Hahlo (1961
SALJ 195 at 204) as well as Kerr (1958 SALJ 84) but also Honore (at
23-24) and Vd Merwe and Rowland (at 355 ev All as quoted by Olivier)
See also Olivier et al par 2.11.2 and Vd Merwe & Rowland at 342, 360,
399-409 Also Du Toit 2.3.3.2 LAST WORD? NO
Millers Attorneys George © member of the PhatshoaneHenney Group 19
PROBLEM OF CONTROL /
ABUSE / ‘SHAM’ TRUSTS
ALSO IN NAMIBIA
• Tendency by founder / trustee to abuse powers /
still control trust and cause it to become an alter
ego (See also slides 82-85)
• Also failing trustee’ s duty to separate trust
property from own
• Sham trusts where trust is invalid
TEST FOR ABUSE OR “SHAM”
FIRST (B15.1.6)
DUAL TEST FOR THIS IS:
1. First check the trust document for validity & compliance with all the essential elements to determine the nature of the agreement ie a trust or partnership etc
2. Check the facts whether, irrespective of the stipulations of the document, the parties (founder and trustees) had the intention to create a valid trust
3. Failure of both 1 & 2 can be indicative of a “sham” trust If not, move on to test for abuse / control
Millers Attorneys George © member of the PhatshoaneHenney Group 20
Millers Attorneys Cape Town / George © member of PhatshoaneHenney Group 21
ABUSE OR “SHAM” ESSENTIALS FOR A VALID TRUST (Cameron 67)
• Founder must intend to create a trust
• Intention must be in a form to create a legal
obligation
• Trust property must be defined with
reasonable certainty
• Trust object must be defined with
reasonable certainty
• Trust object must be lawful
TRUST AS ALTER EGO (1)
“ALTER EGO” = CONTROL / ABUSE
DUAL TEST FOR CONTROL:
1. Check for control given to a specific person in the trust deed Stipulations in the deed can establish de jure control
2. Check the facts whether, irrespective of the stipulations of the trust deed, trustee has exercised/abused his/her powers on his / her own and ignored the rest of the trustees and the trust deed These surrounding facts will determine de facto control
Millers Attorneys George © member of the PhatshoaneHenney Group 22
TRUST AS ALTER EGO (3)
“ALTER EGO” = CONTROL / ABUSE These reserved powers may on its own not be
conclusive to establish control because the fact that the trust deed contains certain powers to control being bestowed on one person is not indicative of whether those powers have indeed been used or abused
There can even be no stipulation in the deed reserving control power in the hands of one person but the facts about a party’s conduct may reveal an abuse of power and control
For these the person’s conduct has to be checked in the 2nd tier of the test for de facto control
Millers Attorneys George © member of the PhatshoaneHenney Group 23
TRUST AS ALTER EGO (4)
“ALTER EGO” = CONTROL / ABUSE
2ND STAGE OF DUAL TEST FOR CONTROL:
2. The 2nd stage of the test is the important de facto control check for a party’s conduct during the marriage namely in which way the trust deed is or was applied and/or powers actually abused even in trust deeds which on its face value may appear to be “clean” of any specific powers of control reserved in the hands of one person
3. Only after the 2nd stage can control be determined
Millers Attorneys George © member of the PhatshoaneHenney Group 24
Millers Attorneys George © member of the PhatshoaneHenney Group 25
REGISTER TRUSTS IN NAMIBIA ! This is a requirement in terms of the 1934
Act
• Failure to lodge trust deed with Master a criminal offence in Namibia
• FAILURE TO GET EXEMPTION FROM SECURITY FROM MASTER CAUSED TRUS-TEES NOT TO BE ABLE TO ACT AS SUCH KRUGER v BOTHA 1949 3 SA 1147 (O); DIE MEESTER v PRESIDENT VERSEKERINGSMPY 1983 3 SA 410 (KPA) (CAMERON 218, 257-8)
• SUCH TRUSTS TO BE REGISTERED WITH MASTER ASAP
Millers Attorneys Cape Town / George © member of PhatshoaneHenney Group 26
TRUSTEE APPOINTMENT (1)
SUMMARY 1 (B6.2.3)
• Comply with specific formalities and
procedures in trust deed when trustees are
appointed and vacancies are filled e.g.
exceeding time limits and specific duty in
such a case & e.g. required minimum
number of trustees
Millers Attorneys Cape Town / George © member of PhatshoaneHenney Group 27
TRUSTEE APPOINTMENT (2) WHEN DOES APPOINTMENT BECOME
EFFECTIVE?
• Master can not appoint HOWEVER he can
indirectly
(President Versekeringsmpy-case 1983 3 SA 410)
• APPOINTMENT TAKES EFFECT AFTER
ACCEPTANCE BUT TRUSTEE CAN ONLY
START ACTING AS SUCH AFTER “AUTHO-
RIZATION” (SEE BELOW) BY THE MASTER
TRUSTEE APPOINTMENT (3) WHEN DOES APPOINTMENT BECOME
EFFECTIVE?
• Trust Moneys Protection Act 34 of 1934 – no
specific requirement as in RSA for trustees to
seek Master’s authority as ito s6 of RSA Trust
Property Control Act HOWEVER
• Trustees in Namibia required to furnish security
to satisfaction of Master (s 3(1))
• Failure to lodge trust deed with Master criminal
offence in Namibia ito sec 2 read with sec 6 of
1934 Act
Millers Attorneys Cape Town / George © member of the PhatshoaneHenney Group 28
Security Sec 3(1) Trust Moneys Protection Act, 1934
Every trustee appointed by an instrument executed
after the commencement of this Act shall, before
he enters upon the administration of any settled
moneys and thereafter as the Master may require,
find security to the satisfaction of the Master for
the due and faithful administration of such
moneys unless the instrument of settlement
directs the Master to dispense with such security
and the Master is satisfied that such security
should be dispensed with or the court otherwise
directs.
Millers Attorneys Cape Town / George © member of the PhatshoaneHenney Group 29
TRUSTEE APPOINTMENT (4) WHEN DOES APPOINTMENT BECOME
EFFECTIVE?
• Trust Moneys Protection Act 34 of 1934 – no
specific requirement for trustees to seek
Master’s authority HOWEVER failure to get
exemption from security from Master cause
trustees not be able to act as such– See:
• Kruger v Botha 1949 3 SA 1147 (O) & Die Meester
v President Versekeringsmaatskappy 1983 3 SA
410 (C) & Maghrajh v Essopjee 1945 2 PH A43 (N)
• B6.2.3.2 & B15.2.1 & Cameron 218 & 257
Millers Attorneys Cape Town / George © member of the PhatshoaneHenney Group 30
OFFENCES
Sec 6: Trust Moneys Protection Act:
• Any trustee who fails to comply
with or contravenes any provision of
this Act shall be guilty of an offence
and liable on conviction to a fine not
exceeding one hundred pounds.
Millers Attorneys Cape Town / George © member of the PhatshoaneHenney Group 31
Millers Attorneys George © Member of the PhatshoaneHenney Group 32
PART 1C
APPLICATION
POSSIBILITIES:
THE TRUST AS HOLISTIC
ESTATE PLANNING TOOL IN
NAMIBIA (SEE SLIDES 96-104)
TRUST NAMIBIAN
APPLICATION POSSIBILITIES • Risk protection
• Continuity—no limitation on perpetuity of trust
• Prevention of asset growth
• Trust as an heir Remember: AGRICULTURAL
(COMMERCIAL) LAND REFORM ACT 6 OF 1995 (to vest in
the State a preferent right to purchase agricultural land
for the purposes of the Act) not applicable to trust but
beware;
• Equitable distribution
• Family disputes
• Incapable persons eg Altzheimer’s
Millers Attorneys George © Member of the PhatshoaneHenney Group 33
APPLICATION POSSIBILITIES (CONTINUED)
• Charitable organizations
• Limited liability
• Business trust / partnerships
• Assurance opportunities
• No audit requirement
• Tax saving vehicle (income tax)
• Instead of a usufruct
• Use in times of recession
Millers Attorneys George © Member of the PhatshoaneHenney Group 34
TAXATION OF TRUSTS IN
NAMIBIA : INTRODUCTION
• The tax dispensation in Namibia regarding
trusts, are rather simplistic and, save for a 12%
transfer duty rate when acquiring fixed property
by a trust or non-natural person, also quite
attractive for property investment in a trust.
• Amendments to the Transfer Duty Act were
proposed to include transfer duty on the sales of
shares/members interest in property/mining
right-owning entities and are expected to be
tabled during 2015/16/17.
Millers Attorneys George © Member of the PhatshoaneHenney Group 36
INCOME TAX OF TRUSTS IN
NAMIBIA
Taxation of Trusts is dealt with in the
Namibian Income Tax Act 24 of 1981 (as
amended)
A trust is not defined as a person for
purposes of income tax, but the trustee is
defined to be the representative taxpayer
“in respect of income the subject of any
trust”
Millers Attorneys George © Member of the PhatshoaneHenney Group 37
INCOME TAX OF TRUSTS IN
NAMIBIA
• A trust is taxed as similar to a natural
person (see tax rate table for individuals).
Income earned by a vesting trust and
certain distributions made by a
discretionary trust are taxed in the hands
of the beneficiary. (Sec 12 (3) & 12(5) of
Income Tax Act – the equivalent of sec 7 in
the RSA)
• Trust Tax scale vary between 18% and 37%
Millers Attorneys George © Member of the PhatshoaneHenney Group 38
INCOME TAX OF TRUSTS IN NAMIBIA (CONTINUED)
TAX RATES (Latest) : 2015/2016 tax years INDIVIDUALS:
Income Bracket Tax rate
• N$ 0 - N$ 50,000 = NIL (No tax)
• N$ 50,001 - N$ 100,000 = 18 % of amount above N$ 50,000
• N$ 100,001 - N$ 300,000 = N$ 9,000 + 25% of amount above
N$ 100,000
• N$ 300,001 - N$ 500,000 = N$ 59,000 + 28% of amount above
N$ 300,000
• N$ 500,001 - N$ 800,000 = N$ 115,000 + 30% of amount above
N$ 500,000
• N$ 800,001 - N$ 1,5 mill. = N$ 205,000 + 32% of amount above
N$ 800,000
• Above N$ 1,5 million = N$ 429,000 + 37% of amount above
N$ 1,5 mill.
Millers Attorneys George © Member of the PhatshoaneHenney Group 39
Millers Attorneys Cape Town / George © member of PhatshoaneHenney Group 40
CONDUIT PRINCIPLE APPLY
B N$1 MIL
A
C D B
80 40 20
C N$500 000
Sec 12
INCOME
200
80
A N$100
40
20
1500100
60
60
Millers Attorneys Cape Town / George © member of PhatshoaneHenney Group 41
INCOME FLOW
B donate N$1 MIL
1500 100
A
C D B
80 40 20
200 60
A donate
N$100
C lend N$500k
INCOME TAX ACT Sec 12 (1)
Millers Attorneys George © Member of the PhatshoaneHenney Group 42
• "representative taxpayer" means-
• (c) in respect of income the subject of any
trust or in respect of the income of any minor or
mentally disordered or defective person or any
other person under legal disability, the trustee,
guardian, curator or other person entitled to the
receipt, management, disposal or control of
such income or remitting or paying to or
receiving moneys on behalf of such person
under disability;
INCOME TAX ACT Sec 12 (1)
Millers Attorneys George © Member of the PhatshoaneHenney Group 43
• "trustee" in addition to every person appointed
or constituted as such by act of parties, by will,
by order or declaration of court or by operation
of law, includes an executor or administrator,
tutor or curator, and any person having the
administration or control of any property subject
to a trust, usufruct, fidei-commissum or other
limited interest, or acting in any fiduciary
capacity or having, either in a private or an
official capacity, the possession, direction,
control or management of any property of any
person under legal disability
INCOME TAX ACT Sec 12
Millers Attorneys George © Member of the PhatshoaneHenney Group 44
• (3) Income shall be deemed to have been received by the
parent of any minor child, if by reason of any donation,
settlement or other disposition made by that parent of
that child- (a) it has been received by or has accrued
to or in favour of that child or has been expended for the
maintenance, education or benefit of that child;
or (b) it been accumulated for the benefit of that
child: Provided that if both the parents had contributed
to such donation, settlement or other disposition, such
income shall be deemed to have been received by the
parents in the same ratio as the amounts of their
respective contributions bear to the whole amount of
such donation, settlement or other disposition.
INCOME TAX ACT Sec 12
Millers Attorneys George © Member of the PhatshoaneHenney Group 45
• (5) If any person has made any donation, settlement or
other disposition which is subject to a stipulation or
condition, whether made or imposed by such person or
anybody else, to the effect that the beneficiaries thereof
or some of them shall not receive the income or some
portion of the income thereunder until the happening of
some event, whether fixed or contingent, so much of any
income as would, but for such stipulation or condition, in
consequence of the donation, settlement or other
disposition be received by or accrued to or in favour of
the beneficiaries, shall, until the happening of that event
or the death of that person, whichever first takes place,
be deemed to be the income of that person.
INCOME TAX ACT Sec 12
• (6) If any deed of donation, settlement or other
disposition contains any stipulation that the right
to receive any income thereby conferred may,
under powers retained by the person by whom
that right is conferred, be revoked or conferred
upon another, so much of any income as in
consequence of the donation, settlement or other
disposition is received by or accrues to or in
favour of the person on whom that right is
conferred, shall be deemed to be the income of
the person by whom it is conferred, so long as he
retains those powers.
Millers Attorneys George © Member of the PhatshoaneHenney Group 46
TRANSFER DUTY
RELEVANT TO TRUSTS • Transfer Duty Act 14 of 1993
• (2) Subject to the provisions of section 9, there
shall be levied for the benefit of the State
Revenue Fund a transfer duty on the value of
any property acquired by any person....at a rate
of:
• (2)(1)(c) twelve per cent of the said value or the
said amount, as the case may be, if the person
by whom the property is acquired or in whose
favour or for whose benefit the said interest or
restriction is renounced is a person other than a
natural person. Millers Attorneys George © Member of the PhatshoaneHenney Group 47
TRANSFER DUTY
RELEVANT TO TRUSTS
• Transfer Duty Act 14 of 1993
• (2) For the purposes of subsection (1), any
trustee or administrator of a trust or any other
person acting in a fiduciary capacity shall, in
respect of any property acquired by him or her
or any property held by him or her of which the
value is enhanced as contemplated in that
subsection, be deemed to be a person other than
a natural person.
• [Sec 2 substituted by sec 1 of Act 20 of 2003.]
Millers Attorneys George © Member of the PhatshoaneHenney Group 48
TRANSFER DUTY EXEMPTIONS
RELEVANT TO TRUSTS Sec 9
(4) No duty shall be payable-
(a) in respect of a change in the
registration of property required as a
result of the termination of the
appointment of an administrator of a trust
under a will or other written instrument or
of a trustee of an insolvent estate;
Millers Attorneys George © Member of the PhatshoaneHenney Group 49
TRANSFER DUTY EXEMPTIONS
RELEVANT TO TRUSTS Sec 9
(4) No duty shall be payable-
• (b) where trust property is transferred by the
administrator of a trust to the persons entitled
thereto under the will or other written instrument
in pursuance of which the administrator was
appointed: Provided that if any consideration is
paid directly or indirectly by such beneficiary in
respect of the acquisition of such trust property
the duty shall be payable on the value of the
consideration so paid;
Millers Attorneys George © Member of the PhatshoaneHenney Group 50
TRANSFER DUTY EXEMPTIONS
RELEVANT TO TRUSTS Sec 9
• Transfer Duty Amendments: introduction of
transfer duty on the sale of shares in companies
and members’ interest in close corporations
owning property, commercial property, land and
mineral licences announced in2015/16 budget.
• This confirms the extension of transfer duties to
companies and close corporations. The effective
date has not been confirmed but is expected to
become legislation soon
Millers Attorneys George © Member of the PhatshoaneHenney Group 51
STAMP DUTY
• Stamp duty is payable at N$12 for every N$
1 000 or part therefore of the value of the
immovable property where purchased by a
juristic person or a trust.
Millers Attorneys George © Member of the PhatshoaneHenney Group 52
TO TRUST OR NOT TO TRUST “Trusts have now also pervaded all fields of social
and business institutions in Civil Law countries.
They are like those multi-vitamins preventing at
the same time stress, colds and colon
problems, sold by chemists and health shops in
Namibian (also read RSA) shopping malls; they
prevent equally well family feuds, business
risks, black economic empowerment difficulties,
public benefit and special persons’ problems.
What amazes the sceptical civilian is that they
really do prevent them” Our own adaptation for Civil Law countries of the statement by:
Pierre Lepaulle “Civil Law Substitutes for Trusts” 36 Yale LR 1126 at 1147 (1927)
Millers Attorneys Cape Town / George © member of the PhatshoaneHenney Group 53
Millers Attorneys George © member of PhatshoaneHenney Group 54
FURTHER READING MATERIAL • PACE R P & VAN DER WESTHUIZEN WM : Wills
And Trusts SERVICE ISSUE 19 (2015) LEXISNEXIS
• OOSTHUIZEN W, KING R, V VUREN L & Van Der WESTHUIZEN W M Estate Planning & Fiduciary Services Guide 2016 LexisNexis
• CAMERON E, DE WAAL M & WUNSH B : Honore’s SA Law of Trusts 5TH ED (2002) JUTA
• DAVIS, BENEKE & JOOSTE : Estate Planning SERVICE ISSUE 37 (2013) LEXISNEXIS
• MEYEROWITZ D : Meyerowitz On Income Tax THE TAXPAYER CAPE TOWN
Millers Attorneys George © Member of the PhatshoaneHenney Group 55
SERVICES
• SEMINARS / COURSES
* PROFESSIONAL AUDIENCES
* GENERAL PUBLIC / ADVISORS & THEIR CLIENTS
• HOLISTIC ESTATE PLANNING
• DRAFTING TRUST DEEDS : FAMILY, BUSINESS
& PBO TRUSTS
• LEGAL AUDITS ON TRUST DEEDS
MILLERS INC
GEORGE : TEL 044 874 1140
FAX 044 873 4848
http:/www.millers.co.za E-MAIL [email protected]
Millers Attorneys George © Member of the PhatshoaneHenney Group 56
END
THANK YOU
MILLERS INC
GEORGE : TEL 044 874 1140 FAX 044 873 4848
http:/www.millers.co.za E-MAIL [email protected]
Millers Attorneys George © Member of the PhatshoaneHenney Group 57
PART 2 ADDITIONAL
REFERENCE SLIDES AS
FURTHER READING
MATERIAL BUT
NOT DISCUSSED
Millers Attorneys George © member of the PhatshoaneHenney Group 58
TRUST HEALTH BAROMETER STRANGE / BAD CLAUSES ** : PITFALLS
Main reasons ** for pitfalls / bad / strange clauses
in trust deeds in the Namibia & RSA :
1. Ignorance of unique trust law system in the Namibia &
RSA
2. Using precedents foreign to local trust law
3. Restrictive / too creative / bad drafting
Result is that in more than 90% of trusts on
which legal audits have been done, validity can be
questioned**
** Based on empirical studies and legal audits which have been done
on trust deeds from Namibia & South Africa for more than 15
years
Millers Attorneys George © member of the PhatshoaneHenney Group 59
TRUST HEALTH BAROMETER
• ADD TO THIS THAT:
• In more than 95% of trusts where the trust deed
was amended and the beneficiaries had prior to
the amendment accepted benefits the
amendments may be invalid
• Still in more than 40%, the parties to the trust
were structured incorrectly
• THEN THE HEALTH PICTURE BECOMES
ALARMINGLY BAD THEREFORE CHECK THE
BOUNDARIES OF OUR KNOWLEDGE / SKILLS
THE BOUNDARIES OF OUR
ABILITIES ARE NB :
1. For those of us who know how much we
know.....
2. For those of us who know how little we know .....
3. For those of us who know that we do not
know.....
4. For those of us who think we know.....
5. For those of us who do not even know how little
we know......
Millers Attorneys George © member of PhatshoaneHenney Group 60
USING TRUST DEED
PRECEDENTS
FOREIGN TO
NAMIBIAN / RSA
TRUST LAW Millers Attorneys George © member of the PhatshoaneHenney Group 61
USING TRUST DEED
PRECEDENTS FOREIGN TO
NAMIBIAN / RSA TRUST LAW • Easy access to foreign (especially Common
[English] Law) precedents (inconsistent with
Namibian / RSA Trust Law)
• Practitioners ignorant of implications of using
these foreign precedents
• Examples:
- Unilateral act by founder
- General power of appointment
Millers Attorneys George © member of the PhatshoaneHenney Group 62
GREY AREA 1
FORMATION OF A TRUST
WITH ONLY ONESELF
(IRREPARABLE)
Millers Attorneys George © member of the PhatshoaneHenney Group 63
Millers Attorneys George © Member of the PhatshoaneHenney Group 64
A TRUST & ITS PARTIES
FOUNDER (INTER VIVOS)
OR TESTATOR (WILL)
BENEFICIARIES
TRUSTEES
GREY AREA (1)
FORMATION OF A TRUST WITH
ONLY ONESELF (i) (B5.1 & B6.1)
• Van der Merwe v Nedcor Bank 2003 1 SA 169 (HHA) confirmed Vaal Reefs Exploration & Mining v Burger 1999 4 SA 1161 (SCA)
• “The proposition that a contract between a person as representative of another with himself is a nullity, is not correct.”
• Question of who does the trustee represent is still uncertain ? Millers Attorneys George © member of the PhatshoaneHenney Group 65
GREY AREA 2
TRUST OBJECT TOO
VAGUE; CHANGING
OBJECT
(REPARABLE ??)
Millers Attorneys George © member of the PhatshoaneHenney Group 66
Millers Attorneys George © member of the PhatshoaneHenney Group 67
GREY AREA (2)
TRUST OBJECT (1): • OBJECT OF A TRUST TOO VAGUE (B6.3 & 8.4)
• The only object which a family trust can
have is the benefit of the beneficiaries i.e.
specifically defined as a class of persons =
“personal” trust
• However object of a charitable trust can be
impersonal i.e. the benefit of the Namibian
community at large = “impersonal” trust (CAMERON 161)
Millers Attorneys George © member of the PhatshoaneHenney Group 68
TRUST OBJECT (2):
• OBJECT OF A PERSONAL TRUST IS
UNDEFINED WHEN (B6.3 & 8.4) :
• It exceeds the specific power of
appointment e.g. where selection / scope
of beneficiaries is left to the discretion of
the trustees
OR
when trustees can create “roll over” trust
on terms as they may decide upon
TYPICAL BAD “ROLL-OVER” (TO
CREATE NEW TRUST) CLAUSE
• “The Trustees may, if they in their discretion
consider it advisable or prudent to do so, create
a new Trust for the benefit of a Beneficiary in
respect of the capital which would otherwise be
payable to such Beneficiary. The Trust hereby
contemplated shall be constituted by means of a
formal written Deed of Trust, all the terms and
conditions whereof, including the persons to be
appointed as Trustees thereunder, shall be in the
discretion of the Trustees.”
Millers Attorneys George © member of the PhatshoaneHenney Group 69
GREY AREA (3)
EXCEEDING POWER OF
APPOINTMENT TO
TRUSTEES
(REPARABLE ??)
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Millers Attorneys George © member of the PhatshoaneHenney Group 71
GREY AREA (3)
EXCEEDING POWER OF
APPOINTMENT TO TRUSTEES (1)
• Our trust law distinguishes between a “general”
and “specific” (also referred to as “special”)
power of appointment (Wills & Trusts LexisNexis
B8.4.2)
• Also termed ‘a right of disposal’ or ‘power of
choosing’ (CAMERON 583)
• Only specific power of appointment accepted in
our trust law Braun v Blann & A 1984 2 SA 850 (A)
at 866H
Millers Attorneys George © member of the PhatshoaneHenney Group 72
EXCEEDING POWER OF
APPOINTMENT TO TRUSTEES (2) • SPECIFIC POWER OF APPOINTMENT GIVEN TO
TRUSTEES FIRST ACCEPTED IN Braun v Blann & A 1984 2 SA 850 (A) at 866H “It is one of the functions of our law to keep pace with the requirements of changing conditions in our society. To recognize the validity of conferring our common law powers of appointment on trustees to select income and/or capital beneficiaries from a designated group of persons would be a salutary development of our law of trusts and would not be in conflict with the principles of our law”
Millers Attorneys George © member of the PhatshoaneHenney Group 73
EXCEEDING POWER OF
APPOINTMENT TO TRUSTEES (3) • JOUBERT JA in Braun v Blann & A 1984 2 SA 850
(A) at 867D-F made it clear that where a person in a will leaves it to trustees to create a new trust for certain beneficiaries but leaves the appointment of the trustees of such “roll-over” trust and the vital terms iro payment of income and/or capital entirely to discretion of trustees that this amounts to “a delegation of will-making power which exceeds the scope of a mere power of appointment of income and/or capital beneficiaries from a specified group of persons” AND DECIDED PROVISO IN WILL TO BE INVALID.
Millers Attorneys George © member of the PhatshoaneHenney Group 74
GREY AREA (4) (still iro certain aspects)
VARIATION WHERE
BENEFICIARIES HAVE
ACCEPTED BENEFITS
(REPARABLE)
Millers Attorneys George © member of the PhatshoaneHenney Group 75
VARIATION OF BENEFICIARIES
PERSONAL TRUST (B18.2.2)
• First establish whether beneficiaries have acquired any rights Then determine the kind of right ie if vested or real or personal right and if beneficiary a minor heed should be taken of all the protective rules pertaining to minors eg Court application may be necessary
• Where rights of beneficiaries are not vested but they have accepted benefits ito stipulatio alteri they then have to be party to amendment Crookes v Watson 1956 1 SA 277 (A) Hofer v Kevitt 1998 1 SA 382 (SCA) Now also Potgieter v Potgieter 2012 1 SA 637 (SCA) (personal right vis-à-vis trustees and statutory fiduciary duty of trustees)
Millers Attorneys George © member of the PhatshoaneHenney Group 76
TRUST OBJECT: Personal
• CHANGING OBJECT OF THE TRUST ? (B6.3
& 8.4)
• The only object which a family trust can
have is the benefit of the beneficiaries i.e.
specifically defined as a class of persons
– What if that class of beneficiaries is
substituted with a new class (sale of trust) or
– A specific beneficiary i.e. a spouse
specifically named, in deed is substituted
– Object changed? Valid amendment?
Millers Attorneys George © member of the PhatshoaneHenney Group 77
VARIATION BY AGREEMENT(1)
• Where founder is alive, the stipulations of trust deed can be varied ito rules of the law of contract instead of derived powers ito trust deed’s variation clause All subject to beneficiaries’ rights
• Can one only rely on derived powers ito trust deed to amend? No – Potgieter-case
• Can one argue that the derived powers to amend will be binding on the beneficiaries, even where they have accepted benefits? No – Potgieter-case
Millers Attorneys George © member of the PhatshoaneHenney Group 78
VARIATION OF AGREEMENT (2) Acceptance? (B18.2.2 & Cameron 498/9)
• No form is prescribed for acceptance –
acceptance even after death of founder
• Advisable for beneficiary to write to trustees
accepting the benefits under a trust
• A “mere mental attitude of approbation” does not
amount to acceptance
• Unequivocal expression of intention to accept
(benefit) needed – factually determined Where
beneficiary is not a party to the trust deed can he
accept deed’s terms if he does not even know
what it is?
Millers Attorneys George © member of the PhatshoaneHenney Group 79
VARIATION OF AGREEMENT (3) (B18.2.2)
Acceptance? (B18.2.2)
• Remember trustees are also bound by their
common law fiduciary duty to exercise an
independent view and cannot adhere to
founder/trustee’s wishes which can prejudice the
existing beneficiaries ie to amend trust deed to
include e.g. new spouse/friend etc
• See practical examples from case law in
Cameron 499-500
• Because the trust is not a true stipulatio alteri,
can all the acceptance of benefits rules apply?
Millers Attorneys George © member of the PhatshoaneHenney Group 80
VARIATION OF AGREEMENT (4)
Still unresolved after Potgieter-case:
1. Is a trust really akin to a true stipulatio alteri ? – See all
the exceptions – eg PBO trust & none of the parties drop
out - is it correct that all the rules also apply to the trust?
2. What is the nature of the right of such a beneficiary that
has accepted benefits?
3. Can one renounce your acceptance? E.g. after a divorce
4. What about beneficiaries who have accepted but cannot
be traced for an amendment ?
5. Can you do a blank acceptance? E.g. when you learn that
you are a beneficiary to a trust, can you accept the
benefits blank and so cause yourself to become a party
to the trust until your demise – also iro of all possible
variations ?
Millers Attorneys George © member of the PhatshoaneHenney Group 81
Variation? Check also for “TESTAMENTARY RESERVATION”
• It is a contractual right / power and not a
testamentary right given in the trust deed to a
founder or one or more of the trustees to
prescribe the formula for the distribution of
benefits among the beneficiaries
• Right to be exercised in a specific way and in a
specific document namely the last will of the
person for whom the right is contractually
reserved
• Erroneous application often causes
discretionary nature of trust to change or
disappear and vesting to take place
THUS
IS THE “INDEPENDENT
OUTSIDER” TRUSTEE
NECESSARY OR JUST A
GOOD IDEA (or perhaps only
‘window dressing’)?
Millers Attorneys George © member of PhatshoaneHenney Group 82
IS “INDEPENDENT” REALLY
“INDEPENDENT” ? (1) AND IS IT REALLY WORKING?
• APPEARS AS IF NOT : Two examples where
“independant outsiders” were trustees :
• Jordaan-case 2001 3 SA 288 (CPD)
• Badenhorst-case 2006 2 SA 255 (SCA)
• There may be more case-examples where
“independent outsider” did/could not prevent
abuse of power by co-trustee
Millers Attorneys George © member of PhatshoaneHenney Group 83
“INDEPENDENT” REALLY
“INDEPENDENT” ? (2)
In Badenhorst v Badenhorst 2006 2 SA 255 (SCA)
(Delivered on 29/11/05) Combrinck AJA held the
following on the two tier test for control:
• That control would have to be de facto and not
necessarily de iure, and to determine whether a
party had such control it was necessary to first
have a regard to the terms of the trust deed and
to consider how the affairs of the trust were
conducted during the marriage. (Par 9)
• SEE ALSO ADDITIONAL REFERENCE SLIDES iro
CONTROL & TAX & INSOLVENCY
Millers Attorneys George © member of the PhatshoaneHenney Group 84
“INDEPENDENT” REALLY
“INDEPENDENT” ? (3) • TRUST REGARDED AS ALTER EGO
1) Jordaan v Jordaan 2001 3 SA 288 (C) 301BC
2) Follow-up on 1) :Zazeraj NO v Jordaan
Unreported Case no 22526/11 (Judgment on 22-
3-2012) ZAWCHC Meer J decided:
• Defence of res judicata cannot succeed –not the
same issues or parties [19-21]
• Variation of trust deed invalid – [22 & 27]
• Trustees have to account to beneficiary [23 & 27]
• Trustee removed as trustee [24 & 27]
Millers Attorneys George © member of the PhatshoaneHenney Group 85
DRAFTING STRANGE,
SOMETIMES BAD OR
RESTRICTIVE
CLAUSES IN TRUST
DEEDS Millers Attorneys George © member of the PhatshoaneHenney Group 86
Millers Attorneys George © member of the PhatshoaneHenney Group 87
VALIDITY OF TRUST DEED
The fact that a trust deed was filed with the Master
of the High Court does not mean that deed is valid (B8.5*)
No duty on the Master to check for validity (B8.5*)
*Pace R & Van der Westhuizen WM Wills & Trusts LexisNexis Service
Issue 14 par B 8.5
Millers Attorneys George © member of the PhatshoaneHenney Group 88
MOST COMMON REASONS FOR
INVALIDITY OF AN INTER VIVOS TRUST
1. Unilateral act by founder/’Granny’ trust(B7.1/ B6.1*)
2. No divesting of property by founder (Cameron 6 & B6.1/ B7.1*)
3. Trust deed notarialy executed : human error invited – (B9.1.2*)
4. Formation of a trust with only oneself (B5.1 & B6.1*)
5. Exceeding the specific power of appointment (B8.4.2* & Cameron 583 et seq)
6. Trust object too vague (B8.4*) / object change
7. Variations without beneficiaries who have accepted benefits (B18.2)
Millers Attorneys George © Member of the PhatshoaneHenney Group 89
MORE
ERRORS MADE WITH
TRUSTS & TRUST
DEEDS (also in RSA)
TRUSTS ARE CREATURES OF
DOCUMENT • BUT CAN ONLY BE AS GOOD AS THE
TRUST DEED ALLOWS IT TO BE
• THE HUMAN FACTOR HOWEVER CAUSES
A NUMBER OF COMMON ERRORS TO BE
MADE
• (√) = ERRORS THAT CAN BE RECTIFIED
• (X) = ERRORS THAT CANNOT BE RECTIFIED
• (M) = MOST FREQUENT OCCURRING ERRORS
Millers Attorneys George © Member of the PhatshoaneHenney Group 90
COMMON ERRORS MADE THAT
CAN BE RECTIFIED (1)
• Exceeding specific power of appointment (√) (M)
• Object too vague (√)
• Using of standardized deeds— copy & paste – one size does not fit all (√)
• Trust deeds drafted with very rigid terms (√)
• No power to substitute trustees (√)
• Excessive power/“Alter ego” for one trustee ie to nominate beneficiaries (Sec 12(6) of Income Tax Act can find application)(√)(M)
Millers Attorneys George © Member of the PhatshoaneHenney Group 91
Millers Attorneys George © Member of the PhatshoaneHenney Group 92
COMMON ERRORS MADE
THAT CAN BE RECTIFIED (2)
• No provision for additional / alternative trustee
(√)
• No power of surety / guarantee iro trustees (√)
• No power to enter into any contract (√)
• Distribute nett income / no capital gain (√)(M)
• “Testamentary reservation” used (√)(M)
• Positive veto power to one of the trustees (√)
• Trust deed not observed (√) (M)
Millers Attorneys George © Member of the PhatshoaneHenney Group 93
COMMON ERRORS MADE
THAT CAN BE RECTIFIED (3) • Only administrative elements may be amended
and founder deceased (√) (M)
• Allowing “in laws” without complete discretion
(√)(M)
• Beneficiaries related by blood/affinity and
other clauses in trust deed (√)(M)
• Incorrect/no roll-over clause into new trust
(√)(M)
• No power to take out short term insurance
(√)(M)
Millers Attorneys George © Member of the PhatshoaneHenney Group 94
COMMON ERRORS MADE
THAT CAN BE RECTIFIED (4) • Resignation clause silent on to whom notice be
given (√)
• Trust deed silent on specific benefits to
trustees i.e. free accommodation (√)(M)
• BBEE/other trusts structured as bewind trusts
(√)(M)
• Family trusts with obligation to keep minutes
and to audit (√)(M)
• Failure to lodge trust deed with Master also
necessary in terms of 1934 Act (√)
COMMON ERRORS MADE
THAT CANNOT BE RECTIFIED • Unrelated founder or ”granny” trust (X)(M)
• Founder not divested of property (X)
• Same person founder and sole trustee (X)(M)
• Upon signing of deed, beneficiaries accept benefits— stipulatio alteri (X)
• Trustee’s lack of authorisation by Master (X)
• Errors when deed notarialy executed (X)
• Variations of deed without beneficiaries who have accepted benefits from trust (√)(X)(M)
• Beneficiaries structured incorrectly (X) (√)
Millers Attorneys George © Member of the PhatshoaneHenney Group 95
THE TRUST AS RISK
PROTECTION & FAMILY
RELATIONSHIP VEHICLE
FOR RESTRUCTURED
FAMILIES
Millers Attorneys George © Member of the PhatshoaneHenney Group 96
ESTATE PLANNING DURING
DIVORCE / REMARRIAGE (1)
PLANNING BEFORE DIVORCE IS FINAL
1.Review existing estate plan and:
2.Nomination of guardian
3.Powers of attorney
4.Review estate plan of divorcee’s parents
5.Children’s support and their protection
6.Life insurance (nominations)
7.Beneficiary / trustee review
8.Will
Millers Attorneys George © Member of the PhatshoaneHenney Group 97
ESTATE PLANNING DURING
DIVORCE / REMARRIAGE (2)
PLANNING DURING REMARRIAGE
REVIEW & ATTEND TO:
1.Selecting matrimonial property system careful
2.Review insurance policy – also nominations
3. Investments
4. Identify potential conflict areas
5.Structure estate plan
6.Will
Millers Attorneys George © Member of the PhatshoaneHenney Group 98
THE TRUST
FAMILY RELATIONSHIP PLAN
Millers Attorneys George © Member of the PhatshoaneHenney Group 99
A
LR LR
TRUST
A B C
MR
TRUST
A B C HR
COMPANY / CC
A
HR CHILD
B
CHILD
C
NEW SPOUSE &
TRUST for
Reconstructed
family
A X Y
LIFE INSURANCE ON ESTATE OWNER’S LIFE
THE ABSENCE OF A BUSINESS
RELATIONSHIP PLAN
INADEQUATE SEPARATION OF INTEREST
GROUPS WHERE THERE ARE :
• Separate shareholders / partners
• BEWARE of risks for trust beneficiaries
with vested rights (ownership) and
“bewind” trust in some business trusts
(which sometimes simulate partnerships)
Millers Attorneys George © Member of the PhatshoaneHenney Group 100
THE TRUST
BUSINESS RELATIONSHIP PLAN
Millers Attorneys George © Member of the PhatshoaneHenney Group 101
A LR
TRUST
A1 A2 A3
MR
TRUST
B1 B2 B3
FAMILY
TRUST
A
FAMILY
TRUST
B
HR
COMPANY / CC
B
OFF-SHORE TRUSTS (1) ESTABLISHMENT HOW ?
• Different trusts rules in different
jurisdictions especially different from
Namibia – Common Law countries
(British related) vs Civil Law countries
(Roman Dutch Law related ie Namibia)
• See explanation by Davis et al Estate
Planning §17.2 on the Jersey trust
described as the “Rolls Royce” of trust
jurisdictions
Millers Attorneys George © Member of the PhatshoaneHenney Group 102
OFF-SHORE TRUSTS (2)
BASIC CHARACTERISTICS?
• Trust deed should specify proper law of
the trust – Founder can specify
• Usually unrestricted powers to add or
exclude beneficiaries – Contra Namibia?
• Common to have “letter of wishes” to
guide trustees
• Founder to relinquish control to trustees
Protector employed to address founder’s
concerns
Millers Attorneys George © Member of the PhatshoaneHenney Group 103
OFF-SHORE TRUSTS (3)
BASIC CHARACTERISTICS? (2)
• Protector not a trustee but can usually
appoint trustees
• Protector usually possess veto rights eg
vote required to make substantial
advances or resettlement into new trust -
- Position described as “fiduciary”.
However role of protector uncertain in
Namibia – at best an agent of the founder
and not subject to Master’s authority
Millers Attorneys George © Member of the PhatshoaneHenney Group 104
TO TRUST OR NOT TO TRUST “Trusts have now pervaded all fields of social
institutions in Common Law countries. They are
like those extraordinary drugs curing at the
same time toothache, sprained ankles and
baldness, sold by peddlers on the Paris
boulevards; they solve equally well family
troubles, business difficulties, religious and
charitable problems. What amazes the sceptical
civilian is that they really do solve them”
Pierre Lepaulle “Civil Law Substitutes for Trusts” 36 The Yale Law
Journal 1126 at 1147 (1927)
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Millers Attorneys George © Member of the PhatshoaneHenney Group 106
END
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