Presenter: Mr S. Madanhi
Why Family Trusts Matter
Estate planning is the broader process of arranging how your assets, debts, and responsibilities will be managed during your lifetime and after your death.
In Zimbabwe, establishing a family trust is one of the most effective estate planning strategies. Trusts protect assets, minimize taxes, and ensure smooth intergenerational wealth transfer. Unlike wills, trusts provide continuity, privacy, and protection against estate duty. Estate duty in Zimbabwe is essentially a tax charged on the net value of a deceased person’s estate. It is governed by the Estate Duty Act, and the current rate is 5% of the net estate value.
Here’s how it works:
- Tax on estates: When someone dies, all their assets (property, businesses, investments, etc.) form part of their estate. The estate is valued, debts are deducted, and the balance is subject to estate duty.
- Exemptions through trusts: Assets placed in a family trust are not part of the deceased’s estate, because legally the trust owns them. Since a trust never “dies,” its assets are exempt from estate duty.
- Practical example: If John owns a business worth US$50 000 and passes away, his estate would pay ZWL$2,500 in estate duty (5%). But if John had transferred the business into a family trust, no estate duty would apply, and the trust would continue managing the business for his heirs.
- Other taxes: While estate duty is avoided, trusts may still face income tax (15% on undistributed income) and sometimes capital gains tax, depending on how assets are transferred.
Key benefits include:
- Asset protection: Safeguards property from creditors, lawsuits, and business risks.
- Tax efficiency: Assets in a trust are exempt from estate duty (5% of net estate value).
- Continuity: Trusts survive beyond the founder’s death, ensuring perpetual succession.
- Privacy: Trust deeds are not public records, unlike wills.
- Flexibility: Trusts can be tailored for education, healthcare, or business succession.
Practical Applications
- Property trusts: Families donate immovable property (e.g., a Harare home) into the trust, avoiding probate and ensuring continuity.
- Business succession: Founders transfer company shares into a trust, protecting against creditor claims and ensuring smooth management for heirs.
- Education trusts: Rental income from trust-owned property funds education for future generations.
Risks & Considerations
- Trustee mismanagement: Trustees must act with fiduciary duty (A fiduciary duty is the highest standard of care in equity and law. It legally obligates one party (the fiduciary) to act solely in the best interest of another party (the beneficiary or principal), strictly prioritizing the beneficiary’s interests over their own personal gain); poor choices can jeopardize assets.
- Costs: Legal drafting, notarial fees, conveyancing, and registration can be significant.
- Loss of direct control: Once assets are transferred, the founder no longer owns them personally.
- Compliance requirements: Trustees must maintain records and act in beneficiaries’ best interests.
Step-by-Step Guide to Registering a Family Trust
- Draft the trust deed – Engage a legal practitioner to outline trustees, beneficiaries, and objectives.
- Appoint trustees – Select responsible individuals or professionals.
Who Can Be Trustees?
- Individuals
- Any adult with legal capacity (18 years and above).
- Must be of sound mind and not insolvent.
- Should be trustworthy and capable of managing financial/legal responsibilities.
- Family Members
- Often chosen for testamentary trusts (A testamentary trust is a type of trust that is created through a person’s will and only comes into effect after their death. It is designed to manage and distribute assets according to the instructions in the will, often for the benefit of minors, dependents, or beneficiaries who may need ongoing financial support.) to safeguard minors or vulnerable beneficiaries.
- Risk: potential conflicts of interest if they are also beneficiaries.
- Professionals
- Lawyers, accountants, or financial advisors.
- Provide expertise in estate planning and asset management.
- Usually charge fees for their services.
- Institutions
- Banks, trust companies, or law firms.
- Offer continuity and impartiality.
- Commonly used for large or complex estates.
- Executors of Wills
- Sometimes appointed as trustees if the will creates a testamentary trust.
- They manage estate assets until distribution is complete.
- Sign before a notary – Founder and trustees sign in the presence of a registered notary public.
- Register at Deeds Office – Submit the notarised deed for official recognition.
- Transfer assets – Move immovable property, shares, or cash into the trust’s name.
- Maintain compliance – Trustees must keep records and issue statements.
Transferring Assets into a Trust
The transfer process requires legal documentation and registration to change ownership from the individual to the trust.
- Property (house/land): Conveyancing via Deeds Registry, with title deed transfer and stamp duty.
- Company shares: Share transfer agreement and update of company share register.
- Vehicles: Change of registration at the Central Vehicle Registry (CVR).
- Cash/investments: Bank transfer into the trust’s account, managed by trustees.
Risks: Costs (stamp duty, conveyancing fees), loss of founder’s direct control, trustee responsibility, and possible delays for inherited property requiring executor approval.
Tax & Financial Implications
- Estate Duty: Trust assets are exempt.
- Capital Gains Tax: Exempt if transfer is genuine and not for profit.
- Income Tax: Trusts taxed at 15% on undistributed income.
Key Takeaways
- A family trust is superior to a will for families with immovable property or businesses.
- It ensures asset protection, tax savings, and smooth succession.
- Success depends on appointing competent trustees and maintaining compliance.
WILL
A will is one of the key legal instruments used within that process of Estate planning.
📜 Role of a Will in Estate Planning
- Asset distribution
- Specifies who inherits property, money, and possessions.
- Guardianship
- Allows parents to appoint guardians for minor children.
- Trust creation
- Can establish testamentary trusts to manage assets for beneficiaries.
- Executor appointment
- Names the person responsible for carrying out the will’s instructions.
- Legal clarity
- Prevents disputes among heirs and ensures wishes are honored.
Common Types of Wills
- Simple Will
- Straightforward document stating how assets are distributed.
- Best for uncomplicated estates.
- Testamentary Trust Will
- Creates a trust upon death to manage assets for beneficiaries.
- Useful for minors or long-term financial planning.
- Living Will
- Focuses on healthcare decisions if incapacitated.
- Not about asset distribution but medical directives.
- Joint Will
- Shared will between spouses/partners.
- Typically binding after one partner’s death.
- Holographic Will
- Handwritten by the testator, often without witnesses.
- Validity varies by jurisdiction.
- Nuncupative Will (baba wakati………)
- Oral will declared before witnesses, usually in emergencies.
- Rarely recognized and often limited in scope.
- Pour-over Will
- Transfers remaining assets into a trust upon death.
- Ensures consistency with estate planning.
- Statutory Will
- Predefined legal form authorized by law.
- Simple but less flexible.