Our expert says:
Family law expert
The existence of assets in trust and how it should be approached in divorce litigation is quite problematic simply due to the lack of reported cases on the point. This is also due to the lack of understanding of the principles applicable to trusts and what constitutes a trust in the real sense. It is time that the Legislature addresses the issue in respect of the patrimonial claims in divorce actions in a similar matter than what was done to pension interests. The real issue arising during a divorce action is whether assets held in trust should be included or excluded for purposes of determining the estate of a party.
A trust is created when property is transferred from the founder to the trustee who then administers such property not for own benefit but for the benefit of the beneficiaries nominated in terms of the trust deed. The trustee acts in a fiduciary capacity towards the beneficiaries but may also have a beneficial interest in the trust assets. A trust can only exist where the founder has segregated the assets of the trust from the rest of the estate otherwise than for his own benefit.
Because a trustee does not become the owner of the assets or trust property but holds such property for the benefit of a third party it is clear that trust property cannot be regarded as part of the estate of a person for purposes of determining the value of an estate for purposes of patrimonial claims in divorce actions. This does not mean however that trust property becomes irrelevant for determining the value of the estate because various considerations may indicate the contrary. It was held in the case of Jordaan versus Jordaan 2001 (3) SA 288 (C) that one of the factors that a court will consider in exercising discretion was whether the trust is merely an alter ego. If the trust is proved to be the alter ego of a party, the trust assets are to be included in the determination of the means of such party. There must also be proof that there was de facto control over the trust assets. In a marriage in community of property or in a marriage out of community of property including the accrual, the court's task would simply be to determine whether the asset is a trust asset or whether it forms part of the communal estate or accrual calculation.
In order to determine true ownership of trust assets, the following should be considered:
(a) Is the trust a real trust or a corporate veil?
(b) When was the trust created?
(c) What was the intention of the founder of the trust?
(d) What is the nature of the trust?
(e) Is there a conflict in interest?
When property is transferred into a trust, the causa for such transfer is normally either a donation or a sale. In the event of a donation and depending on circumstances, donation tax has to be paid. In the case of the sale there would mostly be a loan account in favour of the seller. In practice one often finds that the transfer of assets effected into trusts were without any indication as to the causa thereof. In such instance, and barring proof of a donation, such transfer would create a de facto loan account in the estate of the transferor and an asset.
By Bertus Preller
Family Law Attorney Cape Town
Abrahams and Gross Inc. Cape Town
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