With effect from 25 July 2006, where spouses divorce and transfer property from one to the other in terms of a divorce settlement, the transfer is exempt from transfer duty. This has been on the cards for some time, and has at last been promulgated. This applies to marriages both in and out of community of property. For further information please contact the editor, Kath Rees, on email mailto:kathrynrees@austensmith.co.za.

ALLAN HARTLEY

Many people have utilised trusts over the years for estate planning purposes, protection against creditors and for certain tax benefits. The most common use of trusts has been where a planner establishes an inter vivos trust during his or her lifetime and sells or transfers assets with growth potential to such trust, usually on loan account, thereby pegging the value of the growth asset. This allows further growth of that asset to occur in the hands of the trust and not in the hands of the planner. Trusts are also extensively used in wills, where testamentary trusts are created to make provision for, most commonly, a surviving spouse and/or minor children after the death of the testator.

Trusts have, accordingly, played an important part in a planner's estate and business planning over the years. Unfortunately, however, many planners have failed to properly separate themselves from the assets which they have transferred into their trust, or have failed to adequately remove themselves from an element of control over the functioning of such trusts.

Three recent Supreme Court of Appeal cases have made it quite clear that trusts can be, and have been abused, particularly with regard to business dealings. The casual manner in which many trusts have been administered over the years has come under the spotlight by both the Receiver and creditors, and the Supreme Court of Appeal has now laid down various ground rules pertaining to the use and administration of trusts.

It is imperative that the planner regards the assets administered by the trustees as completely separate from his own assets. In particular, where the classic family trust is established by the planner who appoints himself and his wife as trustees and potential beneficiaries in the trust deed, it is important that the other trustees do not accede to the wishes and instructions of the planner, and that they act independently and strictly in terms of the trust deed in every instance.

In the recent case of Land and Agricultural Bank of South Africa v. Parker and Others, Cameron J A indicated that trustees ignore the provisions of trusts deeds, including procedural and administrative requirements, at their peril and persons dealing with trusts should not assume that the trustees have always complied with the requirements of the trust deed, particularly where trustees are related to each other, or where the planners of the trusts treat their trusts as their "alter egos".

In Badenhorst v. Badenhorst, Cameron J A held that "where Trustees of a Family Trust, including the founder, act in breach of the duties imposed by the Trust Deed, and purport on their sole authority to enter into contracts binding the Trust, that may provide evidence that the Trust form is a veneer that in justice should be pierced in the interest of creditors".

In the third case of Thorpe v. Trittenwein, the trust deed provided for three trustees and stipulated that the decisions of the trustees should be taken on majority vote, but the trustees could delegate their powers to another person. The deed, however, did not authorise one trustee to act on behalf of the others without their authority, and at all times contemplated them acting jointly. Scott J A commented that in this case, "this Trust was typical of a modern business or family Trust where there was a blurring of separation between ownership and enjoyment of the assets", as he commented that "separation from the assets of the Trust is at the very core of the principles of a Trust".

It has become quite clear then, that the acts and omissions of trustees, as well as the administration of trusts, should be approached with the utmost caution and diligence. In particular, the provisions of the trust deed should be strictly followed at all times. The previously casual approach to the administration of trusts and the conduct of trusts affairs, has now become an issue and it is imperative that all trusts are administered professionally and independently from the affairs of the founder or planner.

Some Masters of the High Court, through whose offices trusts are registered, have now indicated that they require at least one trustee of any new trusts to be "an independent outsider", and therefore independent of the planner. This is particularly important in the ambit of the traditional family trust where the planner / founder and his / her spouse are both trustees and potential beneficiaries of the trust.

Some people think that "the knives are out" for trusts. We do not believe that is so. We believe they will continue to be used as extremely useful vehicles through which to plan or structure one's estate or business, provided that:

1. where trust planning is utilised, the administration and control of trusts is conducted with the utmost care and strictly in accordance with the provisions of the trust deed;
2. there should be independence within the ranks of trustees;
3. there should be no element of control over the assets of the trust or the actions of the trustees by the founder/planner.

If you have:

• concerns about your trust (given the contents of this article);
• a trust which is not being administered properly or professionally;
• would like a "health check" to be conducted on your trust deed to ascertain whether any amendments need to be made thereto it in the light of changing trust law over the years; or
• wish to incorporate a new trust or trusts in your estate and/or business planning

please contact Ant Jenkins or Cassie Sharrock of our Fiduciary Services Department who will be in a position to assist you further in this regard.

There are two major developments in Commercial Law which have and will impact on the way in which we do business. The first is the National Credit Act (no. 34 of 2005) parts of which came into operation in June 2006, and the remainder will be implemented over the next few months. This is a very complex piece of legislation which will have a significant impact on all business transactions. It is our intention to break the Act down into component parts and to be able to give clients an accurate indication of some of the consequences and implications of the Act in the new year.

The second major development is the Consumer Protection Draft Bill. This is also a very complex piece of legislation, and although it has not yet been finalised, the indications are that this will happen sometime next year. This legislation (when it is Gazetted) will have further impact on businesses, and especially those interacting with private individuals. Again, more details will follow in the new year. Watch this space for more information concerning the National Credit Act.

The regulations promulgated under the National Environmental Management Act of 1998 (NEMA) have come into operation. At the same time the Department of Agriculture and Environmental Affairs has begun to investigate environmental impacts which required authorisation, but where the developers failed to obtain the required authorisation. This is in terms of Section 24G of NEMA. Where the authorisation has not been obtained, the Department is empowered to levy significant administrative fines in addition to any criminal or civil action which they may take against the offender.

Civil action could include (as in the case of Ehlers and Others v Rand Water Board 2006 (3) SA 299 (SCA)) an order for the demolishing of the offending structure. In that case Ehlers had purchased a sectional title unit where the developer had failed to obtain the necessary consents. The court upheld the order to have the entire scheme demolished. Ehlers' recourse would be against the developer who, naturally, had long since disappeared. It is clear that environmental laws are here to stay and failure to ensure compliance either as a developer, or other person impacting on the environment, or as a investor putting money into a development where the necessary consents have not been obtained, will be exceedingly risky.

Ou Suipie has been travelling. He found some wine made on the Orkney Islands in the far North of Scotland. Unfortunately, it was not actually made from grapes but from other sources, and maybe it would be best to say that this was "interesting". They do make good whisky up there, however, and that more than made up for it.

Ou Suipie has always delighted in the red wine Pinot Noir and the white wine Chardonnay. The best examples of these varieties are to be found in Burgundy, in the South West of France. They have a very interesting system there, because wine farms tend to be small, on account of the land having been divided up over generations as people have inherited. The area is known as the Cote D'Or (which means "Gold Coast"). This used to be under the sea many millions of years ago but the resulting soils are perfect for wine making. After picking, the grapes are delivered to someone called a Négociant, who is a type of wine merchant who basically puts the wine together, bottles and sells it. Ou Suipie very quickly learnt that "dégustation" means "wine tasting available". He was surprised to learn that, unlike South Africa where most of our Chardonnay is matured in barrels, in France this appears to be the exception. There this wine is called Chablis after the village of that name and for those people who do not like the taste of wood in their white wine, Chablis is well worth trying.

Ou Suipie visited Gevrey-Chambertin, which some say is the heart of Burgundy. This is said to have been Napoleon's favourite wine and he took it with him on all his campaigns. He is also supposed to have said that "nothing makes the future look so rosy as to contemplate it through a red glass of Chambertin." Ou Suipie agrees entirely. But do you also know that when Napoleon was exiled to St Helena, he required to be supplied with the famous sweet wine of the Cape, which you can still get from Klein Constantia, the famous Vin de Constance?

But back to Burgundy, Ou Suipie was not there for nearly long enough. There is an incredible amount to see and do there. Ou Suipie would like to close by quoting one Négociant in Nuits St George who said that the only wines that have any hope of coming close to those of France were South African, which was nice to hear. He also said that the French are building a rugby team that will flatten the Springboks at the next Rugby World Cup, but his wines were so splendid that Ou Suipie quite forgave him.

OU SUIPIE

A Mafia Godfather finds out that his bookkeeper has cheated him out of 10 million dollars. His bookkeeper is deaf. That was the reason he got the job in the first place. It was assumed that a deaf bookkeeper would not hear anything that he might have to testify about in court. When the Godfather goes to confront the bookkeeper about his missing $10 million, he brings along his attorney, who knows sign language.

The Godfather tells the lawyer, "Ask him what he's done with the 10 million bucks he embezzled from me." The attorney, using sign language, asks the bookkeeper where the money is.

The bookkeeper signs back: "I don't know what you are talking about."

The attorney tells the Godfather: "He says he doesn't know what you're talking about."

The Godfather pulls out a pistol, puts it to the bookkeeper's temple and says, "Ask him again!"

The attorney signs to the bookkeeper: "He'll kill you if you don't tell him".

The bookkeeper signs back: "OK, you win. The money is in a brown briefcase, buried behind the shed in my cousin Enzo's backyard in Queens".

The Godfather asks the attorney: "Well, what'd he say?"

The attorney replies: "He says you don't have the guts to pull the trigger."

Up in smoke

A Charlotte, NC lawyer purchased a box of very rare and expensive cigars, then insured them against fire, amongst other things. Within a month, having smoked his entire stockpile of these great cigars and without yet having made even his first premium payment on the policy, the lawyer filed a claim against the insurance company. In his claim, the lawyer stated the cigars were lost "in a series of small fires." The insurance company refused to pay, citing the obvious reason that the man had consumed the cigars in the normal fashion. The lawyer sued... and WON! In delivering the ruling, the judge agreed with the insurance company that the claim was frivolous. The judge stated, nevertheless, that the lawyer "held a policy from the company in which it had warranted that the cigars were insurable and also guaranteed that it would insure them against fire, without defining what is considered to be unacceptable fire" and was obligated to pay the claim. Rather than endure a lengthy and costly appeal process, the insurance company accepted the ruling and paid $15,000 to the lawyer for his loss of the rare cigars lost in the "fires". NOW FOR THE BEST PART... After the lawyer cashed the cheque, the insurance company had him arrested on 24 counts of arson. With his own insurance claim and testimony from the previous case being used against him, the lawyer was convicted of intentionally burning his insured property and was sentenced to 24 months in jail and a $24,000 fine.