TRUSTS IN ZIMBABWE
INTRODUCTION
Trusts are a cornerstone of estate planning, offering a flexible and secure way to manage and distribute assets. By creating a trust, individuals can ensure their wealth is protected, their privacy is maintained, and their legacy is preserved. Trusts provide a legal framework for asset management, tax planning, and beneficiary distribution, making them an essential tool for individuals seeking to secure their financial future and achieve their long-term goals. In this article, we will delve into the world of trusts, exploring their benefits, types, and uses, as well as providing guidance on the importance of trusts.
Essential Parties in trusts
- The person creating the trust is called the trustor/grantor/ settlor.
- The person managing the trust is called the trustee.
- The person who benefits or who will receive the assets from the trust is called the beneficiary.
Legal Requirements to setup a Trust
- Notarial deed of trust/ Contractual trust agreement (which is its constitution).
- Legal relationship between the three essential parties mentioned above.
Importance of Trusts
Trusts are important for various reasons:
- Estate planning:-Trusts help manage and distribute assets after death, avoiding probate and ensuring smooth transfer to beneficiaries.
- Asset protection:-Trusts protects assets from creditors, lawsuits and financial risks.
- Tax efficiency: – Trusts can minimize estate taxes and income taxes.
- Privacy: – Trusts maintain privacy and confidentiality of assets and beneficiaries.
- Business succession: – Trusts facilitate business transfer and succession planning.
- Protection of minors: – Trusts manage assets for minors until they reach adulthood.
- Flexibility: -Trusts can be customized to meet specific goals and circumstances.
- Charitable giving:-Trusts enable charitable giving and legacy planning.
Types of trusts available in Zimbabwe
There are several types of trusts, including:
- Revocable Trust
- Irrevocable Trust
- Living Trust/Inter-vivos Trust
- Testamentary Trust
- Charitable Trust/ Donation Trust
- Family Trust/Dynasty Trust
- Statutory Trust
- Educational Trust
- Debenture Trust
- Revocable Trust
A revocable trust is a trust agreement in estate planning that can be amended or revoked by the grantor during their lifetime. Revocable trusts are often used as an alternative to wills. The benefits of revocable trusts include:
– The grantor has control over their estate for their lifetime.
– The trust becomes irrevocable upon the grantor’s death.
– Revocable trusts avoid probate court.
– Revocable trusts cover a broader range of assets re distributed across multiple locations.
– Revocable trusts offer more flexibility in setting the terms and timeframes for execution of a trust.
However revocable trusts are not tax shelters and provide no tax benefits.
- Irrevocable Trust
An irrevocable trust is a legal document that cannot be modified easily. It also entails that the property you transfer to the trust is no longer in your control. The advantages of an irrevocable trust include:
– Stronger protection from creditors.
– Assets transferred outside probate
– Avoided estate taxes on trust assets.
- Living Trust/Inter-vivos Trust
A living trust, also known as a revocable living trust or inter-vivos trust, is a legal document that places ownership and control of property into a trust, managed by a trustee for the beneficiaries. Here are some key things to know about living trusts:
– Can either be revocable or irrevocable depending on the choice of the grantor.
– Can be used to manage and distribute assets to beneficiaries
– Can help you avoid probate court.
– Can reduce estate taxes.
– Can set up long-term property management.
– Can be used to facilitate the transfer of assets after death.
– Can be changed or modified during the course of the grantor’s life.
However this trust does not provide protection against estate tax and it also does not replace the need for a will.
- Testamentary Trust
A testamentary trust is also called a will trust or a trust under will or trust mortis causa and it is a trust that is made possible by the instructions in a person’s will. The settlor can specify how and when their assets will be distributed to the named beneficiaries. Here are some things you need to know about testamentary trusts:
– A testamentary trust only comes into existence after the settlor dies.
– A testamentary trust is revocable while the settlor is still alive, but it becomes irrevocable after the settlor dies.
– Testamentary trusts are often used by parents to leave assets to their children.
– The assets will be distributed to the children once they reach a certain age or milestone.
– Testamentary trusts can avoid legal action and irresponsible financial decisions made by the beneficiaries.
– Testamentary trusts do not require beneficiaries to pay taxes on the income distributed from the trust.
– There is no limit to the number of beneficiaries when creating a testamentary trust.
- Charitable Trust/ Donation Trust
A charitable trust is a legal entity that holds and manages assets for distribution to charity. It involves the donor making a donation of assets which become the main subject for the purposes for which the trust is established.
-They are irrevocable, meaning the donor cannot take back donated assets.
-They offer tax deductions for the assets donated to charity
- Family Trust/Dynasty Trust
A family trust is a legal arrangement that manages the estate and assets of a family. It is a trust vehicle set up to benefit the family members of the grantor or settlor of the trust. The benefits of such a trust include:
– It can either be revocable (can be changed or terminated at any time) or irrevocable trust (cannot be changed once it is created). The grantor therefore has a discretion on which one he/she would prefer on a balance of benefits and convenience.
– It can avoid probate, delay or reduce taxes and protect assets.
– It can be simple and flexible.
– It can limit estate taxes.
– It can avoid legal proceedings.
– It allows beneficiaries to maintain their public benefits eligibility.
- Statutory Trust
A statutory trust is a trust that is established and governed by specific state laws or statutes or in terms of legislation. The benefits includes:
– It can be used for business purposes.
– It offers liability protection.
– It provides benefits similar to corporations.
– It can be used for real estate and passing down assets to family members.
– It is simple and inexpensive to form.
– It does not terminate or cease to exist after the incapacitation or death of a trust holder.
- Educational Trust
An educational trust is a type of trust where the trustor creates a fund to support the education of a beneficiary. Educational trusts can also be used to establish or finance schools. Educational trusts are also called college trust funds because they are often created to pay for college tuition and other educational expense. Educational trusts are usually set up by parents or grandparents but can also be set up by charitable institutions Educational trusts can name a single beneficiary or multiple beneficiaries, such as a group of siblings or scholarship winners. The benefits are:
-Educational trusts can be structured to incentivize certain behaviors or educational goals by setting up criteria that the beneficiary must meet to receive the trust funds.
– Educational trusts can provide tax benefits.
– Educational trusts flexibility in investment and distribution.
-Educational trusts offer protection from misspending, debt, divorce and other actions.
- Debenture Trust
A debenture trust is a debt instrument with a contract for repayment from the company issuing the debt. It is established for protection of debenture holders where a number of people lend money to a company and there is need to strictly control the rights of lenders. The Company receives funds for capital expenditures, and the investor receives guaranteed interest and principal payments. Here are some key points to note on debenture trusts:
– The contract must specify the interest rate and dates of interest and principal payments.
– Some debenture contracts also include requirements for the issuing company, such as minimum liquidity ratios and profit margins.
– Only banks, insurance companies and other public financial institutions may serve as a debenture trustee.
– The trustee’s duties include requesting periodic reports from the company and enforcing the security interests of debenture holders according to the trust deed’s provisions.
CONCLUSION
In conclusion, trusts are a powerful tool for estate planning, asset protection and tax efficiency.by creating a trust, individuals can ensure the secure transfer of wealth to future generation, support loved ones, and achieve their philanthropic goals. With various types of trusts available, it is essential to understand the benefits and limitations of each to make an informed decision. By seeking professional advice and carefully considering your options, you can harness the potential of trusts to achieve your unique objectives and leave a lasting legacy.
