Wednesday 12 May 2021
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Effective trust management

The use of trusts in Namibia have become more relevant and trusts are commonly used as a vehicle to ensure effective estate planning, limit potential executors fees and provide for credit and liquidity risk protection. Trusts are also used to ensure sustainability in family investments and even business investments and enterprises. Various opinions exists on whether or not a trust is a separate legal entity in its own right or whether it constitute a legal agreement between the founder, trustees and beneficiaries of the trust. This debate will not be addressed in this piece. We do however mention it to indicate that such a debate does exist. A trust is however dealt with as a separate taxpayer and the trustees are deemed to hold the assets in their capacity as trustees only and such assets and income will be dealt with separately from their personal income and assets.

In order for a trust to be recognised as such and for a trust to be deemed to be legally constituted it is however important that the management of the trust affairs be conducted in a certain manner. A trust and its assets are established for the benefit of the beneficiaries and nothing else. A trustee may also be a beneficiary of the trust.The general guidelines for the management of a trust can be summarised as follows: The trust assets are there for the benefit of the beneficiaries and a trustee may not deal with them in a way that benefits himself, unless he is also a beneficiary. The trust may not be managed as an extension of oneself. Trust assets and income must be clearly distinguished from personal assets and income. If a trust is managed as an extension of oneself the whole benefit and reason for having a trust may be in doubt and the benefits may fall by the wayside.

Trustees must make decisions in line with the stipulations of the Deed of Trust and all the trustees have a fiduciary duty to ensure that they are informed about decisions and matters relating to the trust. Any assets transferred to the trust by the founder or trustees of the trust are now the property of the trust and such assets will now be managed by the board of trustees as they may deem fit. If a founder or trustee that transfers assets to a trust tries to influence the management of the trust or if a veto voting right is extended to such founder or trustee in the Deed of Trust, the whole existence of the trust may be in jeopardy.

A discretionary inter-vivos trust, as is the case in most family trusts, do not have “shareholders” or vested beneficial rights. The distribution of benefits are done at the discretion of the trustees. A beneficiary can therefore only include a distribution on his/her personal balance sheet once such a distribution has been made and not on the basis of a potential future distribution. It is also important for financial institutions, especially if a credit evaluation is being made, to understand this fact. Trusts can act as valuable instruments to ensure credit protection, estate planning and succession planning. It is however important that one understands how to manage such trust.

Hennie Gous
[email protected]

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