What and Why is a Trust?

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What is a Trust?

A trust is not a company.  The owner of a property settles or transfers the property, as part of an arrangement whose only purpose is to benefit the beneficiaries for which trustees take responsibility.  Obviously the settlor has to have trust and confidence in the trustees.  A trust does not have shares or shareholders or directors.  A trust thus can’t be bought or sold because a trust does not have an owner, although trust has perpetual existence much like a company.   

Why should you form a trust?

You may have a property whose rent may be to finance the maintenance of one of your children who may be physically challenged or to finance maintenance of pet animals that you may have or to distribute equally between your family members.  You may have a business in a foreign country that needs to be managed by the directors.  Because directors' interests are different from shareholders' interests, you may think of transferring the shares in a trust obligating a trustee to ensure that the business is managed well by the directors, that all laws are complied with and to allocate the dividends in the manner you desire.  

People normally think that trusts are formed to avoid death duty or capital transfer tax.  This is not entirely true because transfer duties are paid when properties are transferred to trust.  People also think that certain properties are put in the trust so that they are not exposed to creditors.  This is also not entirely true because an insolvent person or a company can’t transfer assets to a trust to disadvantage creditors and it is illegal.  A solvent person can however do it, but again, it will be unlawful for him to ask the trustee to direct all the income to him or to ask the trustee to sell the property for his exclusive benefit. 

Why should you form a Botswana Trust?

Botswana has enacted Trust Property Control Act.  See https://www.rsm.global/botswana/insights/company-law-updates/botswana-trust-property-control-act-2018 for further details.  Briefly, Master of the High Court has pervasive powers not only to register the trust but even to remove the trustees who don’t act in the best in interests of beneficiaries or to amend the Trust Deed to ensure that beneficiaries interests are well protected. 

Botswana is a great destination for your investment.  https://www.rsm.global/botswana/insights/doing-business-botswana/general outlines many reasons for it.  Botswana Trust can hold foreign assets and can have foreign trustees who, of course, come under the purview of the Trust Property Control Act.

Sometimes, Trusts are better than Companies

  1. Each trust is regulated by a custom-made document called Trust Deed, whereas Botswana Companies Act regulates companies.  Yet Trust has perpetual existence like a company.  Meetings, accounts, audit, voting, trustees, duties and powers, beneficiaries, etc. are all matters that can be flexibly designed in the Trust Deed specific to the requirements of the Settlor and beneficiaries.
  2. Trusts can be used for business especially for passive income earning.  In Botswana with no exchange controls, there are international possibilities, too.  
  3. No audit is required in trusts but settlors may choose to carry out audit. 
  4. Deemed income provisions that apply to a company, can't equally apply to Trusts.  Where however trusts are formed without substance only to evade tax, Commissioner General has powers to disregard any arrangement or scheme and Trust is an arrangement basically.  See https://www.rsm.global/botswana/news/trusts-and-botswana-tax for other aspects of Botswana tax on Trusts.
  5. A trust can be used for business assets (usually paid-for assets), thus keeping these assets safe from creditors.  Donors and settlors should be solvent and the intention should never be to disadvantage creditors.
  6. Management trusts can be used to manage business interests.  Long-term investments can grow without interruption when they are divested in professionally administered Trusts. Life assurance, if the spouses are not financially astute, may  be  held  in  trust  and  the  funds  administered  by qualified trustees
  7. Expatriates that return to home country will not own the investment and the growth will thus not accrue to them. 

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