A new breed of legal support

Let’s tap the potential of Trusts for Tanzania growth

2019-08-26 06:39:27

By Paul Kibuuka @tzpaulkibuuka

In its most general meaning, a ‘trust’ is a legal arrangement among three essential parties (the settlor, the trustee and the beneficiary) in which the settlor transfers legal ownership of the assets (trust property) to the trustee for the benefit of the beneficiary.

The trustee is under a fiduciary duty to act solely in the best interests of the beneficiary when dealing with the trust property, failing which the trustee is legally accountable for any damage to the beneficiary’s interests. 

Forming a trust is a huge life decision, but the nitty-gritties of trust creation are fairly straightforward. Although it may be possible to create a trust orally, broadly, trusts are created by way of a ‘deed of trust’ or ‘trust deed’, which should be custom-made to meet the specific purpose of the trust. 

In Tanzania, trusts are governed by the Trustees’ Incorporation Act, Cap 318 [R.E.2002] which has recently been amended by the Written Laws (Miscellaneous Amendments) (No. 3) Act, 2019 in order to, inter lia, exclude an NGO, a company, a society, a trade union,  an agricultural association, a political party, a sports association/club, a microfinance group (VICOBA), a cooperative society and any trust which the minister responsible for legal affairs may declare not to be a trust for the purpose of the Act from the definition of the term “trust”.

Nevertheless, besides the Trustees’ Incorporation Act, Cap 318, other pieces of legislation (such as, the Income Tax Act, 2004, and the Tax Administration Act, 2015) impact the existence and operation of the trusts in Tanzania. 

The evolution of trusts all over the world remains demand-led, yet the Trustees’ Incorporation Act, Cap 318 as an enactment is archaic both in time and in substance in the context of the modern developments concerning trusts.

Furthermore, for its implementing rules, the Trustees’ Incorporation Act, Cap 318 still relies on the Trustees’ Incorporation Rules, 1956.

The inflexibility of the legal framework for trusts in Tanzania to accommodate trailblazing trust devices in present-day financial and legal practice and more dynamic relationships among the settlor, trustee and beneficiary means that extant Tanzanian trusts lag behind in providing a more appropriate and effective wealth and succession planning mechanism for Tanzanian family assets. 

What is more, the legal framework triflingly jettisons the fears and concerns of potential settlors to lose control over trust properties transferred to rascal trustees whose motivations do not support the common good.

Some of the trailblazing trust devices developed by many of the world’s fastest-growing economies in recent years include, but are not limited to: Directed Trust, Trust Protector, Special Purpose Entity, Family Advisor, and Trust Matter Privacy.

These devices deliver far more flexibility and control to settlors and beneficiaries and their advisers to modify and influence key aspects of the trust and provide direction to trustees with regard to investment management and trust distributions.

Consequently, some Tanzanian settlors may elect to hold and plan their family assets through trust arrangements set up in foreign countries. 

There is a general belief in Tanzania that trusts are used for tax planning purposes. But in actuality, trusts are a great tool for managing family assets since, unlike a will, they work during one’s lifetime and the trust deed can be changed to meet the specific intentions of the settlor and the ongoing needs of the beneficiaries.

Moreover, irrespective of the demise of the settlor, the trust property is able to remain within the trust for the life of the trust which may span many generations. 

In keeping with its position as a major gateway to the African continent, Tanzania cannot isolate itself from the global trend toward modernizing antiquated laws and rules governing trusts. 

Unless specifically exempted, trusts are subject to tax separately from their beneficiaries under section 52 of the Income Tax Act, 2004. Trusts are, therefore, a potential revenue source for the government, but they remain largely unexploited. 

Let’s tap into the potential of trusts for the growth of the Tanzanian economy by reforming the Trustees’ Incorporation Act, Cap 318, and the Trustees’ Incorporation Rules, 1956 in order to spur the local wealth succession and asset management and planning industry.

Paul Kibuuka is the managing partner of Isidora & Company Advocates. Email: Twitter: @tzpaulkibuuka This article was first published in The Citizen on Saturday, 24 August 2019.

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