Do trust assets form part of a joint estate?

We recently become aware of new case law that was reported by the Supreme Court of Appeal regarding trust assets of discretionary trusts and whether it falls under the joint assets of people married in community of property. What is important about this case is that this is the first reported case law in many years surrounding Trusts.

The Case

Do the assets belonging to a Trust form part of a joint estate of parties who are married in community of property?
The case of WT and others v KT (933/2013) 2015 ZASCA 9 (13 March 2015)

Introduction

This case provides a foundation when considering whether the assets of a trust forms part of a person’s estate and whether that such person is attempting to hide assets in a discretionary trust (Click here for an explanation on the different types of Trusts) and attempting to deceive those that are entitled to certain assets.

The Supreme Court of Appeal in this matter had to make the decision whether the assets of a Discretionary Trust form part of the joint estate of the parties who were married in community of property.

The facts of the case

WT had instituted divorce proceedings against KT in the South Gauteng High Court. KT did not oppose the divorce proceedings and ancillary relief, but contended that the assets of the Trust (of which WT was a trustee and beneficiary) formed part of the joint estate and therefore the assets of the Trust should be divided equally.

Below is an extract of the counterclaim by KT which was made in the South Gauteng High Court:

“The plaintiff [WT] deceived and made false representations to the defendant [KT], inter alia the plaintiff falsely represented to the defendant that the purchase of a dwelling . . . [for] the plaintiff and the defendant, would be registered in terms of a Trust to protect it from the plaintiff’s business/es debtors and in terms of which both the plaintiff and the defendant would be beneficiaries, but proceeded to exclude the defendant from the Trust as a beneficiary and, from her 50% (“per centum”) entitlement thereto in the joint estate in the event of a divorce.”

8. The defendant pleads that for the purposes of determining the assets in the joint estate the assets of the Trust alternatively the prior matrimonial home . . . registered in the name of the Trust fall to be included in the joint estate as:

8.1 The Trust was established as the alter ego of the plaintiff [W T] in that:

8.1.2 Plaintiff had no true intention to establish the Trust as an entity separate from him and the joint estate;

8.1.3 Plaintiff effectively de facto controlled the . . . Trust, having regard to the terms of the Trust Deed and the manner in which the affairs of the Trust were conducted;

8.1.4 Plaintiff regarded the Trust as a financial vehicle whereby he and the joint estate could amass his own wealth and obtain a financial advantage for himself and the joint estate;

8.1.5 Plaintiff, but for the Trust would have acquired and owned the assets of the Trust in the joint estates’ name;

8.1.6 Plaintiff regarded the Trust as a financial vehicle for his and the joint estates’ benefit.

8.2 Plaintiff is and always has controlled the Trust, having regard to the terms and the manner in which Trustees conducted themselves and affairs of the Trust.

 In the premises, KT contended that the Trust was and is in reality no Trust at all, the assets forming part of the Plaintiff’s estate and thereby the joint estate.’

In the court a quo, being the South Gauteng High Court, Lamont J made the decision that the assets of the Trust formed part of the assets of the joint estate.

WT and the other trustees representing the Trust took the matter on appeal to the Supreme Court of Appeal.

KT limited her argument in the Supreme Court of Appeal and her main argument was that WT had deceived KT and had falsely represented to her that the property was to be registered in the name of the Trust, purely with a view to protecting the property from WT business creditors; and The Trust was established as the alter ego of WT inter alia by virtue of the fact that WT controlled the Trust for his personal benefit with a view to amassing wealth only for himself.

The Supreme Court of Appeal found that there was no factual or legal basis for KT’s argument in that WT had deceived her and the facts surrounding the establishment of the Trust clearly indicated that KT’s opinion or belief that she would be a half owner of the property was improbable or unlikely to have to be true.

The Order

The Supreme Court of appeal ordered:

  • The appeal is upheld with costs, save for costs attendant upon the preparation of the record for the purposes of the appeal.
  • The order of the court a quo is set aside and substituted with the following order:

`(i) It is declared that the assets of the [W T] Trust with Master’s reference number IT11246/1999, established in October 1999 do not form part of the joint estate of the parties.

(ii) The action in this matter is postponed sine die to enable the value of the joint estate of the parties to be determined.

(iii) The defendant is directed to pay the plaintiff’s costs as well as the costs of the trust.’

A copy of the full judgment of WT and others v KT (933/2013) 2015 ZASCA 9 (13 March 2015) can be found here.

Conclusion

The Supreme Court of Appeal in this case, under these circumstances, decided that the assets of a discretionary trust do not form part of the joint estate of parties married in community of property.

We advise clients to contact Paizes Attorneys should they feel this new case law could have an impact on their current trust or need further legal advice surrounding the issue of trusts.