How an expired trust left a farmer’s legacy in limbo

You can also listen to this podcast on iono.fm here.

DUDUZILE RAMELA: Ladies and gentlemen, story time. A successful sugarcane farmer died believing his affairs were in order. He had significant wealth, a family trust, an updated will, and an advisor relationship spanning more than five decades. His latest will left the residue of his estate to the family trust.

However, during the administration of the estate, it emerged that the trust had quietly ceased to exist years earlier. A clause limiting its duration had never been extended. This is a true story as shared by Old Mutual. We look now at the case study and what it tells us about structures surrounding your wealth.

Nevetha Maharaj is a fiduciary specialist at Private Clients by Old Mutual. Thank you very much, Nevetha, for your time this morning. What was the cost of this oversight, and who should have picked it up?

NEVETHA MAHARAJ: Good morning, Dudu. Thank you. Yes, as you advised your listeners, the clause that was overlooked was that there was a limiting clause to the trust, in that long before the last will was actually implemented, there was a limiting clause to the trust that then caused the trust to cease to exist in the sense that the clause indicated that the trust would come to an end at a particular date that had already passed – and the trustees had not unanimously extended that clause.

That being the case, the trust had ceased to exist long before the last will had been signed, and long before the client had passed away.

Read: Ensuring your legacy: Why regular will reviews are essential

DUDUZILE RAMELA: So what did that now mean for his dependents?

NEVETHA MAHARAJ: When you look to the trust as well, there was effectively no independent trustee, which meant that there were gaps in governance. But the fact that the issue remained undetected meant leaving the balance of your estate to your heirs, effectively the trust – and that particular trust had ceased to exist.

So in this case, there was the possibility – or what is transpiring – is that part of the estate is now going to be ‘distributed testate’, which means in terms of the will, part of the estate, which is the residue of the estate, is going to devolve intestate.

That means that the Intestate Succession Act is going to be part of what’s going to happen.

So, what would have been a fairly seamless transfer of wealth has now become a problem in terms of there being delays in the estate being transferred. You’re going to have to revisit the Intestate Act in order to determine – or redetermine – who the heirs are in the estate.

Read:
Using a testamentary trust to protect your children’s inheritance
Protecting your children’s inheritance through a testamentary trust
Trusts explained: How the wealthy protect their money – and how you can too
Dying without a will: The cost of intestacy in SA

DUDUZILE RAMELA: It’s a relationship that spans more than five decades with this financial advisor. What should have prompted a fresh look at the client’s arrangements? Is it oversight on the part of the financial advisor, or is it an oversight also on the part of the farmer?

Should he have known something? I guess I’m asking for somebody who’s listening, thinking in terms of responsibilities, is it your responsibility, or what happens here because the consequences sound quite material?

NEVETHA MAHARAJ: Absolutely. The consequences are material in the sense that there are going to be a lot of tax consequences that go along with it.

But in terms of responsibility, it’s the drafter of the will, which in this case was an attorney who lived in the area, together with the financial planner.

So the responsibility in my opinion would be joint. It would have been that if you are drafting a will where the end beneficiary or the residuary beneficiary is going to be a trust, the right thing to have done would have been to look at your trust document and check if the trust document was still fit for purpose, in the sense that if it’s going to be the residuary heir, is it fit? Has it been audited? Is it still future-fit, fit for purpose in that it needs to make sure that whatever you’re doing in your will needs to talk to what is happening in your trust.

In this particular case, on closer inspection it would have revealed that the trust had ceased to exist many years before the client had passed away.

So for both a planner and a will drafter – who would more than likely be the attorney, or an accountant, or even a fiduciary specialist in a trust company – the ideal questions would have been: When was your trust deed last reviewed? Do the will and the trust still work together?

Those would be the points where you would say, ‘Yes, it’s time to take a little bit of a deeper dive into what we’re doing. ‘Have certain trusts – is your governance in good order?’

Read:
When does a family trust still make sense?
Why an outdated will can derail your estate plan
Two lesser-known safe vehicles for death and estate benefits
Is your family trust robust – or vulnerable to attack?

Trust law in South Africa has evolved to such an extent that everything now needs to be recorded. There is now new beneficial register ownership. It all speaks to the viability of the trust and whether it’s still fit for purpose.

So yes, I think to answer your question, there is a dual responsibility of asking the question. A client may not be skilled enough to point a drafter or a planner in the right direction. So for me the skill set sits with the person drafting the will – a professional drafting the will – together with the financial planner involved in the matter.

DUDUZILE RAMELA: Fair enough. Thank you so much for your time this morning. Nevetha Maharaj is a fiduciary specialist at Private Clients by Old Mutual.

#expired #trust #left #farmers #legacy #limbo