Frequently asked questions on trusts

(Last Updated On: September 2, 2021)

FUNGAI CHIMWAMUROMBE &    TAPIWA MUHLWA

 

In the previous article on family trusts, a lot of questions have been asked by various individuals.

 

These were questions arising from areas which were not comprehensively articulated in that article.

It has been deemed prudent to do a follow-up article that comprehensively addresses the most frequently asked questions to enrich the understanding of family trusts in the domain of estate planning and management.

Who can appoint trustees?

A family trust is a creation of a family and therefore, the answer as to who can appoint trustees can be provided for by the creators of the family trust.

Usually, the power to appoint the first trustees is given to the settlor or the founder of the trust.

The board of trustees is also given powers to appoint trustees for the duration of the trust and the trust deed provides the procedures to be followed in coming up with the rightful candidates.

If the trustees cannot appoint the trustees for whatever reason, the court can be roped in to assist, and obviously, regards will be given to the provisions of the trust.

Who can remove trustees?

The family trust usually provides the tenure of office for the trustees and some family trusts give trustees three years as a minimum.

This means trustees can automatically leave office when their term of office expires unless there has been a reappointment.

Family trusts can also provide circumstances upon which trustees can automatically be removed from office.

The circumstances include:

  1. a)      Conviction of a trustee for a crime that involves dishonesty;

 

  1. b)      Conviction coupled with a custodial sentence that renders one incapable of executing their duties;

 

  1. c)      Senility;

 

  1. d)      Conflict of interest; and

 

  1. e)      Mental incapacitation etc.

 

The trustees usually have the power to remove any trustee from office for reasons provided in the trust and the trust itself provides the mechanisms.

Who supervises and monitors trustees?

The family trust itself sets the parameters within which trustees should operate.

The trust deed will then be used as a template to sue the trustees by any aggrieved member.

Beneficiaries or any aggrieved party can sue the trustees if the trustees act outside their mandate as stipulated in the deed of trust.

In cases of negligence or recklessness, the trustees will be sued in their personal capacity and they can only get the covering of the trust if no negligence, recklessness or dishonesty can be inferred on their part.

What this means is that in circumstances where it can be proved that an unscrupulous trustee has transacted in the name of a family but for an unsanctioned personal benefit, liability falls on the person trustee in question who will be asked to personally meet whatever penalty from his/her pocket.

How flexible is a family trust in terms of adding or subtracting assets?

A family trust is very flexible in adding or subtracting assets. However, what governs the flexibility is the manner in which the trust has been set up.

Usually, a family trust provides for a provision empowering trustees to accept further assets on condition that the donated asset will be used to satisfy the aims and objectives of the trust.

In terms of subtracting the assets, the trustees can subtract the asset if the trust is set out in a manner which allows subtraction.

However, subtraction of an asset should be done only for the sanctioned purpose/s which the family trust seeks to achieve.

Who has the mandate to dissolve a family trust?

The family trust is normally given a lifespan by the founders.

There is normally a clause in the trust deed that provides for when a trust can be dissolved and how it can be dissolved.

In such a scenario, the trustees will obviously be entrusted with the powers to dissolve the trust.

In the case of a family trust, in the event both the husband and wife die, a family trust can continue in existence if the trust so provides or the wishes of the founder/s so provide.

It has to be noted that a family trust has and can be given perpetual existence by the founders.

It is safe, therefore, to an asset that a family trust can live as long as the founder wishes, and can carry on with the wishes of the founder for ten generations without any impediments.

Conclusion

Family trusts are one’s creation and they carry the outlook of the wishes of the founder/s and these wishes are set within the confines of the law.

This is one great advantage of family trusts which make them one of the effective vehicles of estate planning and management.

 

Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted for feedback at fungai@zenaslegalpractice.com and WhatsApp 0772 997 889. 

Tapiwa Muhlwa is a senior associate at Chimwamurombe Legal Practice and can be contacted on tapiwa@zenaslegalpractice.com

 

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