Trust lessons for spouses
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A couple married when they were young, with no assets to their names. They both worked in the retail industry and soon realised they could start their own business.
They captured a niche market and the business started doing really well. This enabled them to start other business ventures, which increased their wealth substantially. They were advised to transfer their assets into various trusts. Luckily, the wife acted as a trustee on the trusts and was also a beneficiary.
The wife was the hard worker, whereas the husband was the spendthrift. Working 18 to 20 hours a day in their retail business took its toll after many years, causing the wife to burn out. She decided to take a sabbatical to improve her health.
During this period, the husband, the so-called independent trustee and the accountant (who was acting as a trustee and the accountant, which naturally causes a conflict of interest) colluded to restructure the businesses so that his wife could not lay her hands on any money. They relied on the majority rule in terms of the trust deed to make all decisions in the trust, so excluded her from all meetings and decisions.
When she returned to the business, she realised that all the restructuring had taken place behind her back. When she asked questions, she was told that all the money she had loaned to the trusts had been converted to shares, after all the assets were moved into companies held by the trusts.
She could therefore not claim repayment of her loans, nor did she have any say in the businesses, as her husband was appointed as sole director in all the companies in which all their assets were held.
Once all the husband’s plans were in place, he asked his wife for a divorce. She had no access to money and her husband offered to pay her R100 000 a month for 20 years as a settlement. This would add up to about 8% of the total estate in today’s terms, without taking inflation into account. They were married out of community of property, with accrual, entitling her to 50% of the total estate. She was devastated and helpless.
She obtained the assistance of a trust specialist, and all the trustees’ wrongdoings were exposed and reported to the Master of the Court. The Master asked them to report to him. They knew what they had done was not above board and could not account to the Master. Based on that, the Master started a process to remove them. Only then did the husband’s bravado cease and he entered into settlement negotiations. The wife got what she was entitled to and was divorced in days, literally.
WHAT you can learn
First, when you set up a trust, you can be the founder, trustee and beneficiary (Goodricke and Son (Pty) Ltd v Registrar of Deeds, 1974), and you should be if wealth built up with your partner is transferred into a trust. Often, spouses are told that they cannot be a trustee or should become a trustee only on the death of the other spouse.
Trustees are the decision-makers in a trust. If you are not a trustee (particularly in a discretionary trust), you cannot be involved in decisions relating to the trust, neither can you influence or question trustee decisions. Once you are a trustee, you cannot be excluded from trustee decisions. The “Joint Action” rule demands that decisions regarding any transaction in respect of trust matters must be reached by all trustees unanimously.
Second, in order to receive any benefits from a trust, you need to be appointed as a beneficiary of the trust. You can be either an income beneficiary, which may only allow you to receive income that the trust generates, and/or a capital beneficiary, which may allow you to receive capital (assets) from the trust. Beneficiaries have rights to receive information and can ask for detailed information about the trust.
Third, if the trustees are dishonest and not acting in the best interest of all beneficiaries, they can be held accountable.
The Master has the power to request the trustees to account for their decisions, and if they ignore the Master, the Master can remove them. If they provide inadequate information or if the information is obviously problematic, the Master can order an investigation to be carried out.
Although there are remedies for the abuse of trust assets, which spouses and partners have access to, it is critical to ensure you are a trustee and/or beneficiary, depending on what entitlement you would have had to the trust assets in terms of your marriage regime, if a trust was not used.
Without being a trustee or beneficiary you have no right to trust information and cannot question or influence decisions trustees make.
Phia van der Spuy is a registered Fiduciary Practitioner of South Africa, a master tax practitioner (SA), a trust and estate practitioner, and founder of Trusteeze, a professional trust practitioner.