OPINION: Bequeathing your assets to an existing trust upon your death
JOHANNESBURG - It may make sense in many instances to utilise your existing trust/s as part of your legacy plan. Your assets can be bequeathed to an existing trust, if that trust instrument allows for that - the trustees of that trust have to be specifically empowered in terms of the trust instrument to accept such a bequest.
Review the trustee power clause to ensure that the trustees can in fact accept further donations/bequests.
An obvious asset to bequeath to a trust is a loan owed by the trust to the testator/testatrix, typically resulting from moving assets into the trust and funding trust assets on loan account by the testator/testatrix during his/her life. The testator/testatrix can also bequeath other assets to one or more existing trusts.
It appears if one can bequeath assets to both vested and discretionary trusts, however one needs to be mindful of certain principles.
A bequest to a vested inter vivos trust was tested in the Kohlberg v Burnett case of 1986. The testator bequeathed the residue of his estate to two trusts that he created about a year before his death.
It was claimed that the trust deed did not form part of his will, that the bequest was a bequest to the beneficiaries under the trusts, that the identity of the beneficiaries could only be identified from the trust deed and that one cannot incorporate the terms of a document into your will by merely referring to it. It was argued that the will failed to identify the beneficiaries of the bequest and therefore the assets would devolve intestate.
The Court did not agree with this argument and confirmed that a bequest to an inter vivos trust is valid without the terms of the trust being incorporated into the will, as required in terms of a testamentary trust (a trust created in terms of a will). It held that a trust is not a legal persona, but that trustees are entitled to act and hold property on behalf of a trust, that the beneficiaries were the trusts which are clearly identifiable from the will, and that individuals who benefit in terms of the trust deed are not beneficiaries in terms of the will, but rather in terms of the trust deed.
It is important to note that the two existing trusts in this case vested the beneficiaries with certain rights. It stipulated how the income and capital of the trusts were to be dealt with by the trustees - the trustees had no discretion to deal with the income and capital of the trusts (a discretionary trust), and were instructed in the trust deed how to deal with it.
In this case, there was no question of a delegation of testamentary powers, a principle that is not allowed in South African law - only a testator/testatrix can instruct how his/her assets should be dealt with post death. The law does not allow a testator/testatrix to delegate his/her testamentary powers beyond certain limited exceptions, including achieving that through a trust structure.
This case did not deal with discretionary trusts, in terms of which trustees have full discretion to deal with trust assets, which, in certain instances, may be equated to a delegation of testamentary powers. It appears if the determining factor whether one can bequeath your assets to a discretionary inter vivos trust, is the level of discretion afforded to the trustees in the trust deed. One will therefore have to study the terms of the trust deed before you bequeath your assets to such trust, and effect amendments if needed.
The Braun v Blann & Botha case of 1984 established the principle that only a specific power of appointment is accepted or permitted in terms of South African trust law.
South African law distinguishes between a general and specific power of appointment afforded to a trustee. If the trustees are granted too wide powers in the trust deed, such as the power to create further trusts as they wish, or to include new beneficiaries (not envisaged by the testator/testatrix when he/she drafted a will), it may well be that the granting of such wide powers to trustees may pose a risk of attack of such trust as a beneficiary in terms of a will. Some even argue that a power to completely exclude a beneficiary from benefitting (as is the case with most discretionary trusts for it to qualify as a discretionary trust) from the trust, may open a bequest to such trust to a risk of attack. It is important to note that despite the fact that a bequest to a discretionary inter vivos trust (with too wide trustee powers) may be open to attack, any attempt to empower trustees with an impermissible general power of appointment (unlimited discretionary powers) would in any event lead to the trust being declared invalid.
In summary, ensure the trust deed allows for the receipt of bequests, and that the trustees are not afforded unlimited powers in the trust deed.
Similar to creating a testamentary trust upon your death, Capital Gains Tax, Estate Duty and Executor’s Fees will be paid first, before such assets can be moved into a trust. If there is not enough liquidity in the estate, the Executor may have to sell assets to pay these costs before anything can be transferred into the trust. For these reasons, it is not recommended to wait until your death to move assets into a trust. You may rather want to establish a trust during your life and grow assets in the trust.
Phia van der Spuy is a registered Fiduciary Practitioner of South Africa®, a Master Tax Practitioner (SA)™, a Trust and Estate Practitioner (TEP) and the founder of Trusteeze®, a professional trust practitioner.