…Understanding the impact of trusts on asset declarations
Politicians have in recent years displayed some sort of transparency in the form of asset declarations, but a local tax expert says this practice is pointless if trusts in which assets are stacked are not declared.
Since the advent of asset declarations in 2009, the narrative as to the real reason why politicians opt to turn to family trusts has been making the rounds, with many convinced that public officials use trusts to deflect any allegations of insider trading or crooked investments. Investment banker, Hennie Gous, welcomes the declaration of assets by the country’s political leaders, but cautions that the process is all but fruitless if assets are hidden in trusts. “From a business perspective, trusts are a great wealth management tool, but when it comes to corporate governance it is quite the opposite,” Gous said. A massive leak of documents from a Panama-based law firm has placed politicians under scrutiny across the world, due to their use of offshore trusts to protect or hide their assets. As Namibians wait for more Cabinet ministers to publicly declare their wealth, many are keen to see whether those with trusts will lay bare assets in those trusts.
President Hage Geingob is one of the few local politicians who have come out publicly and has subsequently revealed that he is a trustee. He is one of the beneficiaries of the Dr Hage Geingob Family Trust.
Finance minister Calle Schlettwein also made public his wealth, but, according to his declarations, he is not a trustee or beneficiary of any trust. The advantages are clear: it allows a trustee to invest aggressively without facing lengthy disclosure procedures or risking political blowback “All my assets are in a trust and it is really two-fold, one is for asset protection and the other estate planning. The reason for this is that if I die and all my assets are in personal hands it will be locked up in my estate. My family will have to wait for close to a year before they can access the assets, a move which is totally impractical from a business perspective,” he said, adding that executive fees are much lower on trusts.
Gous partly dispelled the notion that trusts are primarily used to hide assets by the wealthy. But in the political arena, Gous was against non-disclosure of trusts. “From a good corporate governance view, you have to declare the trust because in the end it is still part of the family wealth although it is not in your personal capacity, but the mere fact is that you benefit from it,” he said. Trustees often have the luxury of choosing between discretionary and blind trusts. “For politicians, I believe it is in the interest of transparency to opt for a blind trust because the trust will be managed by professional services unlike a discretionary trust where you have direct influence over it,” Gous said. Gous used the example of South Africa’s Deputy President Cyril Ramaphosa, who placed his wealth in a trust when he converted from being a businessman to a politician.
“Cyril was wealthy prior to being a politician, but when he became a politician he put his wealth in a trust and appointed a legal firm that manages his trust. Only the management is involved in managing the trust, therefore there can never be an argument of conflict of interest between his business and his political lives,” Gous said. Gous revealed that the practice of blind trusts is rarely used among the country’s political elite. “We do not have a lot of blind trusts in Namibia, but I am not aware of any of our politicians that use blind trusts, most of them are into family trusts. This still exposes them to accusations of conflict of management because in a family trust they still have direct influence over the assets in the trust,” he said. Gous said: “From a Namibian political environment point of view, we cannot deny that assets in trusts are part of your wealth and although it is not in your name, it is just ethical that if you want to play open cards with the electorate then you must at least declare the worth of the trust, if not all details. They must also declare what their spouses own regardless of whether they are married in or out of community of property and any assets registered under the name of a minor because they have control over those assets.”
We all know asset declaration is about control over anything you have direct or indirect beneficial rights, Gous said. Impact of trusts on tax Regarding claims that trusts are also used as a tool to avoid the taxman, Gous opposed such a notion. “In Namibia you cannot avoid tax by placing your assets in a trust because individuals and trust pay the same tax provided it is in the same tax brackets,” he explained.
In Namibia, said Gous, trusts are well regulated by Bank of Namibia so it will be very difficult to avoid any tax obligations by virtue of having a trust. Gous has since called for the revamp of the Trust Moneys Protection Act 34 of 1934, which Namibia currently uses to regulate trusts registered in Namibia. According to Gous, a revamp is needed to give the Master of High Court registrar more authority when interrogating trust funds in the country. “At the moment the regulator does not have a lot of power. She can ask questions but has no authority to demand for hidden information. Seeing that from a pure disclosure perspective, a trust deed in Namibia is not public information, the regulator has limited powers,” he noted.