Real Estate Investor Magazine South Africa April 2015 | Page 39

LEGAL

Trusting
your Trust
Illegal sham trusts
BY AMY DEDEKIND

I

n an Eastern Cape judgment, a trust had been
created by the husband during his marriage and
the issue was whether the wife’s application to
join the trustees of that trust as parties in the
divorce proceedings could be entertained. The wife
alleged the issue to be determined by the trial court was
whether the assets of the trust were true trust assets or
whether they were her husband’s personal assets. The
court also had to determine whether her husband’s
personal assets were hidden in the guise of a trust
property. To determine this issue, the trustees had to be
parties in the litigation.
“Sham trusts are again occupying centre stage in the
courts, and correctly so,” says Estates Practitioner, Amy
Dedekind.

“Trust assets are not included in
an accrual claim because they are
not legally owned by either party.”
The court compared a trust to a company and whether
the principle of ‘lifting or piercing the corporate veil’,
applicable in company law, can be extended to trusts,
despite them not being separate legal entities. To
determine whether trust assets do indeed belong to the
trust or are personal assets of the trustees, the court
www.reimag.co.za

looks at the terms of the trust deed, the control of the
trustees over the trust property, the nature of the assets
and the management of the trust. Where a trust is used
to build personal wealth for the trustees and is not
being administered for the benefit of the wider group
of defined beneficiaries, the ‘trust veil’ may be pierced
in terms of common law principles.
Applying the provisions of the Matrimonial
Property Act, trust assets are not included in an accrual
claim because they are not legally owned by either
party. The wife in this case alleged that the assets of the
trust must be treated as if they were de facto owned by
her husband because they were acquired pursuant to a
simulated transaction. Setting aside the simulation will
result in the assets being regarded as what they truly
were, namely personal assets of the husband.
The court held that the wife was entitled to join the
trustees in the litigation in order that her allegations
can be investigated by the trial court. The effect of
a finding by the court in her favour will be that the
trust veil will be pierced and the court will refuse to
recognise the separateness of trust assets from the
husband’s personal assets.
Thus, estate planners must create trusts with caution
and protect the integrity of their administration.

RESOURCES
Garlicke and Bousfield Inc.
April 2015 SA Real Estate Investor

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