Trusts in Zimbabwe

Trusts provide a legal framework for managing assets, planning taxes and addressing the distribution of assets to beneficiaries.  For these reasons the creation of a Trust can be an essential instrument for individuals seeking to secure their financial future. By creating a Trust, individuals can ensure their wealth is protected, their privacy is maintained, and their legacy is preserved. The creation of a Trust can be utilised for estate planning which in turn can offer flexible and secure ways to manage and distribute assets.

This article will look at the nuances of Trust instruments, touching on the different types of Trusts, their uses and importance.

To begin with, in order for a Trust to come into existence there are four elements that are essential to its’ creation; namely: -

• The Settlor, the person creating the Trust;
• A Trustee, the person or entity entrusted to manage the Trust Assets. Note it is advisable to have at least three Trustees to ensure impartiality as well as for the purposes of resolving an impasse on decisions pertaining to Trust Assets;
• A Beneficiary, the person or entity benefiting from the Trust. Note it is also permissible for there to be more than one Beneficiary’s or indeed classes of Beneficiaries; and
• Trust Property, the assets transferred to the Trust.

Moreover, it is a legal requirement for the above elements to be captured in a Notarial Deed of Trust or a Contractual Trust Agreement which establishes the relationship amongst the Settlor, Trustee(s) and Beneficiaries as well as governing the manner in which the Trust Assets will be managed. Note that the Notarial Trust Deed is ordinarily prepared by a Notary Public 

The following are some of the different types of Trust recognised in Zimbabwe together with a brief description of the purpose for their creation: -

Revocable Trust

A Revocable Trust is a Trust Agreement in estate planning that can be amended or revoked by the Grantor (a person or institution that makes a grant or conveyance) during their lifetime. Revocable trusts are often used as an alternative to Testamentary Wills. 

Irrevocable Trust

Irrevocable Trusts are legal instruments that cannot be amended easily and the creation of this type of Trust means that any Assets transferred by the Settlor to the Trust will cease to be in his or her control. 

Living Trust/Inter-vivos Trust

This type of Trust is created during the lifetime of the Settlor and can either be revocable or irrevocable and it is possible to amend this type of Trust during the Settlor’s life.

This instrument can be utilised to manage and distribute assets to beneficiaries and as well as to set up long-term property management of the Trust Assets. 

Testamentary Trust

This type of Trust is created through a Testamentary Will, taking effect after the Settlor's death. This means that this type of Trust is revocable while the settlor is still alive, but it becomes irrevocable after the Settlor dies.

Charitable Trust or Donation Trust

A Charitable Trust is a legal instrument that holds and manages assets for distribution to charity. It involves the Donor donating assets which become the main subject for the purpose for which the trust is established. This type of Trust is irrevocable, meaning the Donor cannot take back donated assets.

Family Trust/Dynasty Trust

A Family Trust is established to manage the estate and assets of a family. It is set up to benefit the family members of the Settlor of the Trust. This type of Trust can either be revocable or irrevocable. The Settlor therefore can decide which one he or she would prefer, balancing benefits and convenience.

Statutory Trust

A Statutory Trust is established and governed by specific laws or statutes or in terms of legislation of the country. This instrument can be used for business purposes, to establish liability protection and provide benefits similar to those of corporations. It is worth noting that this type of Trust does not terminate or cease to exist after the incapacitation or death of a Trust holder.

Educational Trust

An Educational Trust is a type of Trust where the Settlor creates a fund to support the education of a Beneficiary. Educational trusts can name a single Beneficiary or multiple Beneficiaries, such as a group of siblings or scholarship winners. Educational Trusts offer protection from misspending, debt and divorce among other undesirable actions.

Some of the advantages of setting up are Trust are as follows: -

• Estate Planning - Trusts help distribute assets efficiently after death;
• Asset Protection - Trusts can shield assets from creditors and lawsuits;
• Tax Benefits - Trusts can minimize tax liabilities, and
• Confidentiality - Trusts can maintain asset ownership confidentiality.

On the other hand, the disadvantages of setting up and maintaining a Trust are: -

• Complexity - Trusts can be intricate and require professional management,
• Cost - Establishing and maintaining a trust can be expensive; and
• Rigidity - Trusts can be inflexible, making changes difficult.

Trust instruments are a powerful tool which can be utilised to protect assets and secure transfer of wealth to future generations. It is advisable, however, to seek professional services when contemplating creating a Trust, and particularly in choosing the most suitable type of Trust for your purposes.