01 Sep Family Trusts And Asset Protection.
Property can be transferred from one person to another in different ways, one of which is through a trust. Trust is a concept by which one person (called “the trustee”) is nominated by another person (called “the settlor”) to hold the legal title in his property for the benefit of some other person (called “the beneficiary”)[1]. Thus, the settlor gives his property to the trustee to hold or apply it for the benefit of the beneficiary.
A trust must be completely constituted in order for the court to give effect to it i.e., enforceable. This means that all the necessary elements must be present and all conditions met in order for a trust to be properly established.[2] There are two ways of creating a trust: inter vivos trust (living trust) and trust post mortem (testamentary trust).
Living trust is one that is created by a settlor to take effect during the lifetime or after the death of that settlor. It can be created in a manner so that the settlor is at liberty to make changes to the instrument up until the time of his/her demise, or it can be made irrevocable so that the settlor cannot change the terms or cancel the trust[3]. Irrespective of the option chosen by the settlor, the beneficiaries of such a trust stand to benefit from the property whilst the settlor is alive.
The irrevocable living trust is more common with ancillary relief matters in respect of matrimonial causes such as child maintenance. The court may order that a parent creates an irrevocable living trust for the amount awarded as child maintenance and name the spouse as the trustee, enabling the spouse to manage the funds for the benefit of the child. In this regard, the money in that trust account will be used solely for the benefit of the child, in the lifetime of the parent, for the education of children and health care, for example.
A testamentary trust, also created while the settlor lives, does not go into effect until after his/her death. In accordance with normal practice, it may be found in the last will and testament of a testator, whereby the assets or property transferred into the trust cannot be distributed until after the death of the owner of the property. It must be noted however that the validity of trusts of this nature, depend on the validity of the will which embodies them. Additionally, it is a pre-requisite that the relevant will complies with the provisions of the Wills Act, 1971 (Act 360).
Testamentary trusts are usually created where the beneficiaries are minors. They can be created in three ways. Namely, a separate trust for the respective children by creating a specific trust for each beneficiary such that the assets are managed and distributed individually. Alternatively, all the assets intended for the trust are put together and managed together. In this scenario, the surviving parent or the trustee is given the discretion to distribute assets based on each child’s needs, unless otherwise expressed in the will. The third way of creating testamentary trust is by creating a trust to cater for a child with special needs (special needs trust).
Creating a trust comes with the advantage of protecting assets against legal action or potentially irresponsible financial decisions which may be made by beneficiaries. In terms of prudent investment strategies, the trustee has a fiduciary duty to manage trust funds honestly and prudently in accordance with the testator’s wishes and the law[4]. This legal safeguard ensures proper management of trusts, which are often set up to secure assets for future generations of the family.
[1] B. J. da Rocha and C. H. K. Lodoh, ‘Ghana Land Law and Conveyancing’ (2nd Edition) at pages 105-106
[2] Ben Adjei v David Soon Boon Seo (Civil Appeal No J4/12/2008) delivered on 21 January 2009
[3] da Rocha
[4] Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669