Trusts and divorce

Based on South African law, a trustee does not become the owner of trust property but simply holds such property for the benefit of third parties (beneficiaries). As such, trust property cannot be considered as part of a person’s estate for purposes of determining the value of an estate in divorce cases.

Property held by a trust does not form part of the personal property of its trustees, and the courts may not grant an order stating otherwise, unless there is substantial evidence to indicate the trust is being used for improper motives by the trustees.

Section 1 of the Trust Property Control Act (TPCA) provides for the transfer of interest or ownership in property or assets to a designated person or class of persons, as well as control of those assets by a trustee in accordance with the provisions of the main trust instrument. According to Section 12 of the TPCA, trust property does not form part of the personal property of the trustee except to the extent that a trustee is entitled to such trust property as a beneficiary in terms of the trust instrument.

Upon divorce, the impact on a trust does depend on the type of marital regime the couple had.

Marriage in community of property

If you create a trust then you, as the estate planner, require the consent of your spouse to sell or encumber to a trust any assets that are not excluded from your joint estate.

Out of community of property excluding accrual

Each spouse retains the assets in his/her own estate, and the transfer of assets into a trust by one spouse will not affect the estate of the other spouse. Thus, if divorce occurs, one spouse should not have a claim against the assets held in trust by the other spouse.

Out of community of property with accrual

In this case, a spouse may also transfer assets to a trust. Usually, assets are sold by the estate planner to the trust on a loan account. The trust is unlikely to have the means to pay for the assets transferred. The loan or the cash, including the growth thereon, will be include in the estate of the spouse who sold his/her assets to the trust.

It’s important that future spouses timeously gather the necessary legal advice to prevent or limit the future abuse of trusts and the application thereof on their chosen matrimonial property system.

If there is a requirement for setting up a trust we recommend another part of the DIY Legal Services group, DIY-Trusts.