Navigating Trust Setup: The Crucial Checks for Validity You Can’t Afford to Miss!

Navigating Trust Setup: The Crucial Checks for Validity You Can’t Afford to Miss!

Thinking about setting up a trust?  Before you take the plunge, it’s crucial to understand the stringent requirements for its validity. The repercussions of an invalid trust can be serious, making it essential to avoid pitfalls. Financial expert Eric Jordaan sheds light on two often-confused concepts: ‘sham’ and ‘alter-ego’ trusts.

Alter-Ego Trusts: Unveiling the Extensions

Ever heard of an ‘alter-ego’? In the realm of trusts, it refers to a situation where the trust founder essentially treats the trust as an extension of themselves. They continue to manage trust assets as if they were personal belongings. While the trust might seem valid on paper, the key lies in adhering to the Trust Property Control Act. Failure to do so might invite scrutiny from SARS, creditors, or even a spouse.

For instance, a family trust may exist, but if the founder maintains control over assets for personal gain, problems arise. Despite the trust being valid, the courts could rule that certain assets settle personal liabilities of the founder. Signs of an alter-ego trust include a lack of independent oversight, trustee failure to adhere to administration requirements, and a breach of fiduciary duties.

Red Flags of an Alter-Ego Trust:

  • Lack of independent trustee
  • Trustee actions contrary to the trust deed
  • Influencing other trustees
  • Failure to follow trust administration requirements

Remember, an alter-ego trust doesn’t void the trust but may hold the founder or trustees personally liable.

Sham Trusts: The Deceptive Façade

Unlike alter-ego trusts, sham trusts are outright fakes designed to deceive. Courts determine their validity by scrutinising the founder’s intentions at the outset. If it’s found that the founder never intended to create a trust, the court may rule it void. This could lead to assets being considered part of the founder’s personal estate from the beginning.

Spotting a Sham Trust:

  • Lack of clear identification of trust property
  • Absence of legal documentation of rights and obligations
  • Unlawful objectives
  • Lack of an independent trustee with fiduciary experience
  • Violation of trust administration processes

 Consequences of a Sham Trust:

  • Invalid transactions
  • No rights for beneficiaries
  • Loss of protective status against SARS, creditors, and spouses
  • Potential criminal prosecution for the founder

Stay Compliant: Protect Your Trust

To ensure your trust stands up to legal scrutiny, check for signs of abuse or mismanagement. If unsure about its validity, consult a fiduciary expert.

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Avoid the potentially onerous legal and financial consequences by having your trust assessed. Remember, a solid foundation ensures peace of mind in your financial journey!  #TrustSetUp #FinancialWisdom #LegalCompliance #B6Capital #FamilyOffice #B6Group#B6Capital #InvestmentStrategy #FinancialEmpowerment

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