MT Chiwaridzo Attorneys at Law

25/12/2024

Merry Christmas to you all believed clients and friends.

May His joy and peace permeate your lives.

Enjoy!

10/12/2024

What is a Family Trust under Zimbabwean Law?

A family trust in Zimbabwe is a legal arrangement in which assets are held and managed by a trustee or trustees for the benefit of a specific group of beneficiaries, typically members of a family. It is established by a founder who transfers ownership of assets into the trust. The primary goal of a family trust is to preserve and protect family wealth, ensure efficient estate planning, and manage inheritance for future generations.

Key Features of a Family Trust in Zimbabwe

1. Legal Framework

• Family trusts in Zimbabwe are governed by the Trust Property Control Act [Chapter 8:13] and common law principles of trust law.

• The trust is a separate legal entity from its founder and beneficiaries, meaning it can own property, sue, and be sued.

2. Parties to a Trust

• Founder/Settlor: The person who establishes the trust and transfers assets into it.

• Trustees: Individuals or entities responsible for managing the trust property in accordance with the trust deed.

• Beneficiaries: Family members or others who benefit from the trust’s assets or income.

• Trust Deed: The document that sets out the terms and conditions of the trust, including the powers of trustees and the rights of beneficiaries.

3. Purpose of a Family Trust

• Estate Planning: Ensures that family assets are distributed according to the founder’s wishes and minimizes estate taxes.

• Wealth Preservation: Protects assets from creditors, disputes, or poor financial management by beneficiaries.

• Succession Planning: Facilitates smooth transfer of wealth to future generations without probate delays.

• Charitable Purposes: Some family trusts also allocate resources to charitable activities aligned with the founder’s values.

4. Types of Trusts

• Discretionary Trust: The trustees have the discretion to decide how the trust’s assets or income are distributed among the beneficiaries.

• Fixed Trust: The trust deed specifies how the assets or income are to be distributed, leaving no discretion to the trustees.

5. Formation Process

• Drafting a trust deed specifying the terms and conditions, trustees, and beneficiaries.

• Registration of the trust deed with the Registrar of Deeds, which gives it legal recognition.

• Transfer of assets into the trust to enable it to function.

6. Trustees’ Responsibilities

• Managing the trust property in accordance with the trust deed.

• Acting in the best interests of the beneficiaries.

• Keeping proper records and accounting for the trust’s operations.

Advantages of a Family Trust in Zimbabwe

• Protects assets from potential claims or insolvency of beneficiaries.

• Avoids lengthy and costly probate processes upon the founder’s death.

• Provides continuity in management and ownership of family wealth.

• Offers tax efficiency in certain circumstances.

Challenges of a Family Trust

• Requires careful drafting of the trust deed to avoid ambiguity.

• Trustees must be trustworthy and capable of managing assets effectively.

• Potential disputes among beneficiaries if the trust deed lacks clarity.

In Zimbabwe, family trusts are increasingly used as tools for wealth management and estate planning, offering flexibility and protection for family assets while ensuring intergenerational wealth transfer.

10/12/2024

Greetings everyone.

09/07/2022

14/07/2020

Go well brother Counsel. Till we meet. We are poorer without you.

22/11/2018

Taxation and Trust explained

4 years ago
Did you know that Trust Income is taxable in terms of Section 8 (b) of the Income Tax Act (Chapter 23:06)?

A trust is an entity set up when the grantor transfers property to a trustee for the beneficiaries.

A trust can be formed by a will where a person wishes that after his death, part of his estate be handed over to the beneficiaries specified by him in the will and the rest be handed over to a trustee to be held in trust for other use. A trust is generally not treated as a person but is considered a person for tax purposes when dealing with income to which no beneficiary is entitled. The treatment of trust income for tax purposes depends on the terms of the trust or will.

It should be noted that:-

Income held by a trust on behalf of beneficiaries is taxed in the hands of the trust and

Income distributed to beneficiaries in a trust is taxed in the hands of the beneficiaries.

Trust income is taxable using the same rate as companies. Income distributed to individuals has general tax principles, and tax tables that apply to individuals are also applicable in this case.

Types of Trusts

Inter-Vivos Trust

An inter-vivos trust is established by someone during their lifetime to manage certain assets or investments and support beneficiaries, such as family members.

These trusts are governed by a Trust Deed, rather than a Will. These trusts allow assets to be managed on behalf of beneficiaries or generations of a family. The income held in the trust before distribution is taxed in the hands of the trust.

Testamentary Trust

This is sometimes referred to as a will trust, which arises upon the death of the grantor or the person who sets up a trust. It is created to address any estate accumulated during that person’s lifetime or generated as a result of the death itself, such as a settlement in a wrongful-death suit, or the proceeds from a life insurance policy held on the settler.

A trust can be created to oversee such assets and it becomes liable for taxes on the undistributed amounts.

What is a Trustee?

A trustee is a person appointed to manage the trust until the trust expires upon the occurrence of a specific event, for example, when minor beneficiaries reach a specified age or accomplish a deed such as completing a set educational goal or achieving a specified matrimonial status.

Trustee includes:

The administrator or executor/executrix of an estate

The assignee of an insolvent estate

The liquidator or judicial manager of a company which is wound up or under judicial management

Legal representative of a person under legal disability

Types of beneficiaries

Beneficiary with a vested right

This is a person named or identified in the trust instrument who is entitled to the present and future enjoyment of the income.

The beneficiaries have an absolute and unconditional entitlement to the income or assets of the trust and therefore liable for tax on all the amounts.

Beneficiary with a discretionary right

The trustee usually has the choice whether to issue and how much of the income or capital of the trust to issue to the beneficiaries. In these circumstances the beneficiaries only have contingent rights to the income or capital of the trust. Only the distributed income is taxed in the hands of the beneficiary.

Taxation of the Trust itself

Income is taxed in the hands of the trusts only when:-

The benefit of a beneficiary with a vested right is not paid or applied to the intended beneficiary

An event that gives rise to entitlement of a benefit has not happened, for example the attainment of a certain age.

The income is deemed not to have been received by the beneficiary

The income is not accumulated in the hands of the beneficiary in terms of the trust instrument

Expenditure of Trusts

In the taxation of a trust, expenditure and losses incurred against trust income are allowable as a deduction to the extent that they are incurred for the purposes of the trade of the trust or in the production of the trust income except to the extent that they are of a capital nature in the same manner that expenditure and losses incurred by companies are treated for tax purposes.

Reminder to our valued clients

Employees tax (PAYE) for the month of December 2014 is due on 10 January 2015.

Disclaimer

This article was compiled by the Zimbabwe Revenue Authority for information purposes only. ZIMRA shall not accept responsibility for loss or damage arising from use of material in this article and no liability will attach to the Zimbabwe Revenue Authority.

To contact ZIMRA: Visit our website: www. zimra.co.zw, Follow us on Twitter :, Like us on Facebook :www.facebook.com/ZIMRA.11, Send us an e-mail : [email protected]; Call us (Head Office) :04 –758891/5; 790813; 790814; 781345; 751624; 752731

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04/07/2018

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