What is a Trust? Why should you form a Trust?

Your printerfrinedly version for download here: trusts.pdf.

Why should you form a BotswanaTrust?

You will set up a Trust in order to appoint professional trustees to manage or maintain or care for your assets or possessions, particularly when it is not necessary or desirable or possible for you to so manage or maintain or care.  Trust is often used to transfer wealth from one generation to another.  Once you form a trust, your get peace of mind because professional trustees take long term responsibility to act according to the trust deed.

Botswana is a regional financial services centre.  It is centrally located in Southern Africa.  It has a favourable tax regime.  It has enjoyed 50 years of political stability.   There are no foreign exchange controls in Botswana.  These factors render Botswana the right place for trust services.  You can choose to live outside of Botswana and yet be assured that your assets are administered by the Trust to your satisfaction.

Are Directors / employees different from Trustees?

Directors are expected to be honest and at the same time to possess sound business acumen.  In terms of the Laws of Botswana, directors don’t have to be qualified except that they should be adults, should not have been declared insolvent and they should be persons of sound mind.  In professional trustee should be a professional person whose profession is regulated by a Professional Body such as Law Society of Botswana or Botswana Institute of Chartered Accountants. 

An employee is often qualified and/or trained in the job and is expected to give his undivided attention to his work.  Botswana Labour Laws protect his or her position as employee in terms of payment of salaries, leave, severance benefit, hours of work, overtime, etc.  Guided by professional qualifications, experience and ethical values, professional trustees provide due care, keep confidentiality, exhibit professional behaviour and remain objective, since reputational risk is the greatest risk they treat every minute of their professional life.

Responsibilities of Professional Trustees

Professional trustees are not liable for the engagement under the Companies Act of Botswana nor Botswana Labour laws.  They are liable in terms of Trust Property Control Act, 2018.  See  https://www.rsm.global/botswana/insights/company-law-updates/botswana-trust-property-control-act-2018

Why should you form a trust sometimes (and not a company)?

Perpetual succession much like a company; while a company has directors, a trust has trustees.  Trust is ownerless unlike a company that has shareholders.  Biggest advantage with a trust is that each trust is regulated by a custom-made document called Trust Deed, whereas Botswana Companies Act regulates companies.  Meetings, accounts, audit, voting, trustees, duties and powers, beneficiaries, etc. are all matters that can be flexibly designed in the Trust Instrument in compliance with Trust Property Control Act, 2018.  The main objective is to protect beneficiaries.  Simply put,    

  1. Trusts can be used for business especially for passive income earning. 
  2. In Botswana with no exchange controls, there are international possibilities.  
  3. No audit may be required in trusts but settlors may choose to carry out audit. 
  4. No deemed income provisions in terms of loan accounts apply for Trusts.  For companies they apply.
  5. A trust can be used for business assets (usually paid-for assets), thus keeping these assets safe from creditors. 
  6. Management trusts can be used to manage business interests. 
  7. Long-term investments can grow without interruption when they are divested in professionally administered Trusts. 
  8. Expatriates that return to home country will not own the investment and the growth will thus not accrue to them. 
  9. Life assurance, if the spouses are not financially astute, may be held in trust and administered  by qualified trustees.

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