Newsletter 70 (Feb 2023)
❤We hope that you enjoyed Valentine’s Day with your loved ones and that you made lasting memories together!❤
DECEASED ESTATE ADMINISTRATION
The administration of a deceased estate is a time-consuming process. Depending on the unique circumstances of each estate, the process can not only be lengthy but also complicated. Unfortunately, further delays may be caused because of the reliance on various outside service providers, which form an integral part of every estate.
Legatus Trust has limited control over the circumstances listed below. But, despite all the complications and delays encountered during the estate administration process, it remains our goal to provide efficient and timeous service to our clients. Our primary goal is to conclude the administration of a deceased estate as soon and as effectively as possible, to enable loved ones to carry on with their lives after the deceased’s passing.
This month we would like to mention various factors that may have a substantial impact on the timeline of the administration process. These factors include:
Legatus Trust has sought the assistance of a company that can assist us with the transfer and licensing of firearms. This often forms part of an estate legacy. The company that we have partnered with can provide guidance to clients regarding the process and handling of firearm transfers from an estate, as well as other general assistance in this regard. This will speed up the process of firearm transfers during the estate administration process.
Legatus Trus has experienced a slight improvement in the service delivery of the Master’s Offices. Unfortunately, not all services are running smoothly yet and some Master’s Offices’ processes are still in disarray. Backlogs have not been entirely cleared yet and these are still causing delays.
Legatus Trust is experiencing severe service delays when obtaining certificates related to account balances and tax, account closures, and fund transfers to the estate accounts.
In some instances, certain banks do not accept a Power of Attorney to perform some tasks. They require the executor to visit the branch in person to obtain the required information.
The South African Revenue Services (SARS):
In general, dealing with SARS is a slow and long process. Substantial delays are experienced with feedback and response times when obtaining, for instance, tax clearance certificates.
It is becoming increasingly difficult to obtain information from insurance companies, e.g. tax certificates. Fund transfers to estate accounts are found to be executed at a slow pace.
Duplicate vehicle registration documents:
The requirements to obtain duplicate NaTIS documents for vehicles have become very stringent and, as a result, cause severe delays. Not only must the request for a duplicate registration document be handed in in the area where the deceased lived, but it is also required that the executor must submit the request in person.
It is imperative that clients keep their original NaTIS- and all other important documents together in a safe place for easy access when someone passes away.
Patience is when you’re supposed to be mad, but you choose to understand.
To lose patience is to lose the battle.
Patience and time do more than strength or passion.
Jean de la Fontaine
TAX RESIDENCY AND THE ABILITY TO RECEIVE A SOUTH AFRICAN INHERITANCE
Read more about this in the next edition
WHEN CAN A TRUST BE DISREGARDED BY THE COURTS
A trust is a useful tool in estate planning. The establishment thereof, however, is guided by strict laws and regulations, which could render a trust invalid, if not followed to the letter. Even if there is a trust deed, it is no guarantee that the assets are secure, and the trust is safe from attack. The question thus arises: Could a trust be disregarded by the courts?
If it was never the intention to create a genuine trust from the start, a trust could be attacked and labelled a “sham trust”.
Similarly, if a trust was created but the trust assets were treated as personal property, creditors, the South African Revenue Service (SARS) and even a soon-to-be-ex-spouse can have it declared an “alter-ego” trust.
A “sham trust” and an “alter-ego trust” are different concepts, which will be covered in this newsletter. There must be a clear separation between the control and the enjoyment of a trust’s assets. The role of the trustees is to control the trust assets for the enjoyment of the beneficiaries.
A sham trust is defined as a perceived entity that is not entirely what it portrays to be, a wolf in sheep’s clothing if you will. When a trust has been established on the terms of a particular trust deed, but these terms do not reflect the true intentions of the parties (the founder and the trustees), and thereby mislead third parties about the true terms of the trust, it will be labelled a sham trust.
The starting point to check for a sham trust is to check whether the requirements for the creation of a valid trust are present. These requirements include:
The founder must intend to create a trust.
Their intention must be expressed in such a way that it creates an obligation.
The trust property must be defined with reasonable certainty.
The trust object (the beneficiaries in a family trust) must be defined with reasonable certainty.
The trust object must be lawful.
The trust property must be transferred to the trustees or beneficiaries, depending on the type of trust.
The consequence of a sham trust
Only recently did our courts rule that the consequence of a sham trust is that the trust is void from inception. So too are all transactions with such a trust. The court held in the Van Zyl v Kaye case of 2014 that “when a trust is a sham, it does not exist”.
The difference with an alter-ego trust is that the necessary requirements for a valid trust, as stipulated above, are present when the trust is established, but the trustees of the trust act as puppets under the instruction of the founder or another trustee. In such a case, the trust property is treated by the founder or a trustee as if it was their personal property and not belonging to the trust.
Where there are signs of abuse, either in relation to the trust deed, or in the actions of a trustee and/or the founder, it is labelled an alter-ego trust. The possible signs of this kind of trust are:
There is no independent trustee.
The trust deed gives the founder and/or trustee the power to amend the trust deed without the consent of all of the trustees.
The founder has retained some level of control in the trust deed.
A trustee acts contrary to the terms of the trust deed.
There is a dominant trustee who dictates how trustee decisions are made.
The trustees are not acting with the necessary care, diligence and skill expected of them in terms of the Trust Property Control Act.
The consequence of an alter-ego trust
In the case of an alter-ego trust, it does not imply that the trust does not exist, or that the rights of the beneficiaries are set aside. The trust continues to exist, but the court will “investigate” the trust and hold the trustees personally liable.
Marriages concluded before 1984 did not have the benefit of accrual in terms of the Divorce Act. The Matrimonial Property Act with the inclusion of the accrual system was introduced in 1984. In the past there have been many divorce cases where, more commonly the wife, has attacked the trust to have the assets included in the hands of her husband, in order to have the trust assets taken into account when determining redistribution amounts that would be considered fair. Two women who were married prior to 1984 succeeded with their respective cases.
Spouses married under the Matrimonial Property Act did not achieve the same success. The courts held that alter-ego trust assets would not be considered, because the courts do not have the discretion to include assets that do not physically belong to either of the spouses in a divorce settlement. The courts abided by the strict mathematical formula under the Matrimonial Property Act to calculate the accrual.
Two examples of cases:
The first case in South Africa where the court expressly allowed creditors to attach trust assets, was the First National Bank v Britz case of 2011. In this case, the court confused the issues of a sham trust with those of an alter-ego trust.
In the Rees v Harris case of 2012, where a creditor attempted to attach the trust’s assets (which were connected to the trustee), the court held that, under appropriate circumstances, the veneer of a trust can be pierced in the same way as the corporate veil of a company. When it can be demonstrated that a trustee, who has actual control over trust assets, acquired and owns such assets purely for their sole benefit, the assets would be considered as belonging to the trustee and not to the trust.
Article credited to Phia van der Spuy. She is a Chartered Accountant with a Master’s Degree in Tax. She is a registered Fiduciary Practitioner of South Africa, a Chartered Tax Advisor, a Trust and Estate Practitioner, and the Founder of Trusteeze, a digital trust solution provider.
HAPPY HUMAN RIGHTS DAY
“To deny people their human rights is to challenge their very humanity.”
On Tuesday, 21 March 2023, South Africa will be celebrating Human Rights Day. We will commemorate the history of the achievement of some of the rights that we enjoy today, e.g. the right to vote.
Every constitution around the world provides for fundamental rights, which are deemed inalienable. This refers to something that is not transferable or that is impossible to take away. According to the Bill of Rights, as enshrined in the Constitution of the Republic of South Africa, each citizen has among others, the inalienable right to life, equality, human dignity, and privacy.
Natural rights are those that a person is born with, for instance the right to life. Rights to life, freedom of thought, and equality before the law were developed as both natural and inalienable rights. That is, by birth they belong to each human being until their death and can, as such, not be taken away.
In celebrating Human Rights Day, we cherish the freedoms that we enjoy, knowing from past experience how easily people’s rights and freedoms can be stripped away. Our human rights should be treasured and protected at all cost!
Until next time!
“The Legatus Times” Team