Broken Trust: When Fiduciary form masks Personal Wealth
South African courts have long recognised that Trusts can be misused to shield marital assets during divorce proceedings. Although a properly administered Trust is a separate legal entity, courts will "look behind" the Trust where it serves merely as a façade for personal ownership or as a device to defeat an accrual claim.
When Does a Trust Conceal Personal Wealth?
When one spouse alleges asset concealment, the court considers two key factors:
1. Control – Who effectively decides how the Trust property is managed? If the founder or a related party is the sole or dominant trustee, independent oversight may be lacking.
2. Benefit – Who ultimately enjoys the use or income from the Trust assets? If the founder continues to live in the property or draw funds, the separation between legal and beneficial ownership may be illusory.
Where both control and benefit remain with one spouse, the court may declare the Trust an "alter ego", allowing the assets to be included in the calculation of the matrimonial estate.
The Company-Trust Route: Different Form, Same Outcome?
A common structure involves a spouse forming a private company, purchasing property in that company, and then transferring shares or assets to a Trust established for a minor child. This layered approach still fails if effective control resides with the same individual.
Courts trace real control: if one spouse acts as the sole director of the company and appoints compliant trustees, the assets remain under their influence. Accordingly, an accrual claim or a claim for division of the joint estate can still succeed despite the presence of a Trust.
The law draws a distinction between:
1. A sham Trust, where the parties never intended to establish a bona fide fiduciary relationship; and
2. An abused Trust, where a valid Trust is later misused by trustees acting contrary to their fiduciary duties.
In both instances, the remedy is the same: courts may pierce the Trust veil and treat the assets as if held directly by the controlling spouse.
Protecting genuine Family Trusts
Where families use Trusts for legitimate estate planning purposes, certain safeguards are essential:
1. Keep comprehensive and contemporaneous trustee meeting minutes
2. Involve at least one truly independent trustee
3. Ensure all transactions occur at arm's length and reflect commercial reasonableness
These measures demonstrate that the Trust is not a disguised personal asset structure and reduce the risk of judicial intervention.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
