Nov 26, 2021 | Article
Gauteng High Court (Johannesburg) Judge Fiona Dippenaar has considered the better quality of life and opportunities in a foreign country in her decision to rule against a father who sought to scupper his five-year-old daughter’s imminent emigration with her mother. The Star reports Dippenaar presided over an urgent application brought by a mother identified as AK, father LKG and daughter A. The mother submitted before Dippenaar that she resorted to launching the urgent application because she had found a permanent job as a clinical psychologist in New Zealand. She contended that it was in A’s best interests to move to New Zealand because she had been the child’s primary caregiver since birth. LKG opposed the move on the grounds that it would severely prejudice his relationship with his daughter.
Dippenaar ruled that AK’s submissions had merit, notes the report in The Star. ‘In my view, it cannot be concluded that the relocation is not bona fide or reasonable. It can also not be concluded that the relocation decision was not taken bona fide,’ she said. ‘The opposition of the application on this basis lacks merit. The respondent has put up no primary facts which would justify the inferential conclusions he seeks to draw.’ Dippenaar pointed out that in addition to the fact that AK was a primary caregiver, it was a fact that she was relocating for greener pastures with her new nuclear family. ‘The applicant is a trained clinical psychologist who has secured a good position in the profession and the location of her choice,’ she said. ‘She is relocating with her nuclear family, a (new) husband, a (new) baby and A to pursue a new life in a secure location with free education and health-care programmes and a much lower unemployment rate than in SA.’
Dippenaar added: ‘Although it is in A’s best interests to have a good relationship with both her biological parents, the prejudice to her best interests if the relief sought is not granted, in my view, by far outweighs the prejudice if the relief is granted. It would be less detrimental to A not to deprive the applicant of the opportunity to relocate to New Zealand. It is open to the respondent to mitigate such prejudice to A by negotiating or obtaining generous access to A, albeit primarily virtually, at least on a day-to-day basis.’ Dippenaar terminated the parental rights that AK had to give or refuse consent to the child’s relocation
Source: LegalBrief
Nov 26, 2021 | Article
This is a useful article by Phia van der Spuy dealing with this topic:
Trustees should act in the best interests of all the beneficiaries, in line with the terms of the trust instrument. In the Griessel v de Kock case of 2019 the Court held that the “role of a trustee in administering a trust calls for the exercise of a fiduciary duty owed to all the beneficiaries of a trust, irrespective of whether they have vested rights or are contingent beneficiaries whose rights to the trust income or capital will only vest on the happening of some uncertain future event”. If income and capital beneficiaries are not the same people, it may present a potential conflict which the trustees would have to manage.
Define beneficiaries well
Beneficiaries are the only persons who can ever benefit from a trust. There is flexibility regarding how the estate planner can arrange who is to benefit from the trust assets. For a start, one can distinguish between those who can benefit from the capital (the assets) of the trust and those who can benefit from the income generated by assets in the trust. One can also ‘vest’ income and/or capital in one or more beneficiaries (which they are entitled to), or only give one or more beneficiaries discretionary or contingent rights (only a hope to receive something) to trust income and/or capital until the trustees have exercised their discretion in favour of such beneficiaries, upon which such distribution vests in the beneficiaries. In some trusts, beneficiaries may have a combination of rights, such as vested rights to trust income and discretionary rights to trust capital (which beneficiaries hope to receive), or vice versa. This mechanism provides the estate planner with an opportunity to specify which beneficiaries should receive which benefits (income and/or capital) from the trust. This is a personal preference and choice of the estate planner, which needs to be carefully considered by them when the trust is registered.
Potential conflict between different types of beneficiaries
When capital and income beneficiaries are different people, extra care should be taken to ensure that all beneficiaries’ needs are considered. Capital beneficiaries may prefer capital growth and capital preservation, while income beneficiaries may favour maximising income, even if it is at the cost of capital growth or capital preservation. The apportionment of expenses to income and capital beneficiaries may also become a challenge when attempting to establish fairness.
Possible solution
Income should be clearly distinguished from capital in the trust instrument, especially if different people are income and capital beneficiaries. Be mindful how you define ‘income’ in the trust instrument since it may include all ‘fruits’ from assets – such as the occupation of a property – or it can narrowly refer to actual revenue received, such as rental income. The term ‘net income’ – gross income less expenses – should also be clearly defined, and the trust instrument should allow trustees to distribute both income and net income to capitalise on the benefit of the ‘conduit principle’. If only income is distributed, the expenses related to the income will not be capable of deduction for tax purposes in the hands of the beneficiary or the trust and will be lost. Capital beneficiaries, on the other hand, may benefit from the distribution of an actual trust asset or from a gain made on the disposal of trust assets, depending on its definition in the trust instrument.
The treatment of unallocated income should also be defined to reflect the founder’s intention – in other words, whether it will form part of trust capital at the end of a financial year, if unallocated, or whether it will keep its nature as income. If the trust instrument is silent, it may be assumed that income and capital will always retain their individual natures.
In the event that income and capital beneficiaries are different, it is good practice to state in the trust instrument that if the income is insufficient for the maintenance of an income beneficiary that trust capital can be used to make good on any such shortfall. This will assist the trustees in optimising the trust’s investment returns while taking into account the needs of all beneficiaries to prevent unintended hardship. Focusing solely on a trust’s short-term income production may have a detrimental effect on the long-term position and value of the trust’s assets, which, in the long run, may negatively impact both the income and capital beneficiaries.
Advice to trustees
Part of the process of taking control of the trust assets is to ensure that money in the trust is properly invested. The trustees begin this process by establishing, where possible, the intention of the founder of the trust. They would then establish the needs of each of the beneficiaries. The trustees are required to establish the short, medium and long-term requirements of the income beneficiaries, as well as those of the capital beneficiaries. Once the needs of the beneficiaries have been established, negotiated, and agreed upon, the trustees can then ascertain their investment powers before making an appropriate investment.
In the Sackville West v Nourse case of 1925, the beneficiary succeeded in a claim for damages for negligence against a trustee who had made an unwise investment. The trustees, therefore, have to perform a delicate balancing act between seeking out safe investments and avoiding risk, versus investing trust assets productively while considering beneficiary needs – for both income and capital beneficiaries. Since an element of risk-taking seems unavoidable, trustees should record and document their reasons in arriving at investment decisions.
~ Written by Phia van der Spuy ~
Oct 22, 2021 | Article
FISA issued the below press release today, 21 October 2021
Comment on the Master’s Office by the Fiduciary Institute of Southern Africa (FISA)
The public should be aware that there is an unprecedented backlog at the Master’s Offices countrywide. There are however some recent positive developments.
The Master of the High Court has been hard hit over the past 18 months by COVID closures and, more recently on 5 September 2021, a major cyber attack. These two developments combined have caused an almost total breakdown in services by the 15 Master’s Offices around the country.
There has been a recent positive development however in that the Master’s Office ICMS system has been restored, albeit on a sporadic basis, and has been accessed by some fiduciary practitioners.
It appears that Master’s Office officials are able to receive external messages, but it is currently uncertain whether all external messages are received. Furthermore, the offices can unfortunately not currently respond to queries, but might be in a position to respond telephonically, if the query is not reliant on the system.
Louis van Vuren, CEO of the Fiduciary Institute of Southern Africa (FISA) said that the public should be aware that processes which often take some time to be completed will be delayed yet further.
For example, the Master’s Office fulfils a crucial role in providing inter alia Letters of Executorship to executors of deceased estates, Letters of Authority to authorised trustees, and the approval of liquidation and distribution accounts in deceased estates. Banks use the Master’s Office portal to verify Letters of Executorship before they are willing to take instructions from executors regarding the bank account(s) of the deceased. This is a crucial step to enable the executor to make interim maintenance payments to a surviving spouse and/or children of the deceased. All these functions have essentially been on hold since 5 September.
Mr van Vuren said: “Trusts have also been badly affected. New or replacement trustees are not authorised which, if the trust deed requires a certain minimum number of trustees, means that the investment portfolios of trusts cannot be rebalanced and can be impacted negatively by market movements. In addition, testamentary trusts cannot be registered, leaving minor children without maintenance while new charitable trusts can also not be registered. The impact on society and the economy is therefore significant.”
He said: We would like the public to know that the problems are beyond FISA members’ remit, but we are willing to assist the Master’s Offices around the country as much as we can within the existing constraints.
https://www.fisa.net.za/press-release-fisa-comments-on-the-situation-at-the-masters-office/
Oct 11, 2021 | Article
In many instances, it may make sense to utilise existing trusts as part of your legacy plan.
Your assets can be bequeathed to an existing trust – if the trust instrument allows for it.
If this is the case, 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 or bequests.
An obvious asset to bequeath to a trust is a loan owed by the trust to the testator or testatrix. Such loans typically originate from the sale of assets to a trust.
The testator or testatrix can also bequeath other assets to one or more existing trusts.
While it appears one can bequeath assets to both vesting and discretionary trusts (both ownership trusts, where the assets are held by the trustees for the benefit of beneficiaries), it is important to be mindful of certain principles.
Powers afforded to trustees
South African trust law distinguishes between a general and specific power of appointment afforded to a trustee.
The Braun v Blann & Botha case of 1984 established the principle that only a specific power of appointment of trustees is accepted or permitted.
If the trustees are granted powers that are too broad in terms of the trust instrument – such as the power to create further trusts as they wish or to include new beneficiaries (such as those not envisaged by the testator or testatrix when they drafted their will) – it may well be that the granting of such broad powers to trustees may pose a risk of attack on such trust by Sars, creditors and disgruntled beneficiaries.
Some even argue that a power to completely exclude a beneficiary from benefiting (as is the case with most discretionary trusts as it is the only way 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 broad 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.
Bequest to existing vesting trust
A bequest to a vesting 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 instrument 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 instrument, and that one cannot incorporate the terms of a document into one’s will by merely referring to it.
It was argued that the will failed to identify the beneficiaries of the bequest and that the assets would, therefore, devolve intestate.
The Court did not agree with this argument. It 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.
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 of the bequests were the trusts which are clearly identifiable from the will, and that individuals who benefit in terms of the trust instrument are not beneficiaries in terms of the will, but rather in terms of the (existing) trust instrument.
It is important to note that the two existing trusts, in this case, vested certain rights in the beneficiaries.
The trust instruments gave clear instructions in terms of how the trustees were to deal with the income and capital of the trusts. In terms of the trust instruments, they had no discretion to deal with the income and capital of the trusts – it was, therefore, vesting trusts and not discretionary trusts.
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 or testatrix can instruct how their assets should be dealt with post-death and no one else. The law does not allow a testator or testatrix to delegate their testamentary powers beyond certain limited exceptions – including through a trust structure.
What about existing discretionary trusts?
This case did not deal with discretionary trusts, where trustees have full discretion to deal with trust assets, which, in certain instances, may be equated to a delegation of testamentary powers.
It appears that it is the level of discretion afforded to the trustees in the trust instrument that is the determining factor in terms of whether a person can bequeath their assets to a discretionary inter vivos trust.
One would, therefore, need to study the terms of the trust instrument before bequeathing one’s assets to a discretionary trust and effect amendments if necessary.
For example, it is suggested that the beneficiaries (or even the trust instrument, which may affect the rights of beneficiaries or obligations of trustees) should not be allowed to be amended post the testator’s or testatrix’s death.
The trustees must be mindful and exercise extra care when dealing with assets bequeathed to a discretionary trust.
In summary, ensure the trust instrument allows for the receipt of bequests and that the trustees are not afforded too wide powers in the trust instrument, especially a right to amend beneficiaries or their rights.
By Phia van der Spuy
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