Introduction
A trust is a legal arrangement in which an owner of a property commonly referred to as a settlor transfers legal ownership of that property to another person known as a trustee. Under such an arrangement, the trustee will be responsible for the management and control of the trust property for the benefit of the settlor’s intended beneficiaries. Trusts can be created by personal acts of the settlor, an order of a court or by operation of the law.
Section 1A of the Trustees Incorporation Act, Chapter 318, Revised Edition of 2002 as amended by the Written Laws (Miscellaneous Amendments) (No. 3) Act of 2019 (hereinafter referred to as “the Act”) excludes the following entities from being registered as trusts, that is, Non-Governmental Organizations (NGOs), Companies, Civil Societies, Labour Trade Unions, Agricultural Associations, Political Parties, Sports Associations, Microfinance Groups (VICOBA), Corporative Societies and any entity that the Minister responsible for Legal Affairs may declare not to be a Trust.
Types of Trusts
Trusts recognized in Tanzania include a testamentary trust and living trust. A testamentary trust can be found in a will of a settlor, it comes into existence after a settlor’s death. A testamentary trust entails, among other things, the name of a person appointed as a trustee, the names of the beneficiaries, details of the trust property (assets) and powers of the trustee(s). Testamentary trusts are generally irrevocable in nature unless the beneficiaries agree, to alter or change the conditions in a trust. A living trust is created during the settlor’s lifetime, whereby the settlor appoints a trustee to manage his/her assets for the benefit of the settlor’s beneficiaries. The settlor and trustee(s) will execute a trust deed which sets out the management and distribution of the settlor’s assets containing, the description of the trust property, details of the trust’s beneficiaries and how the trustee(s) will exercise his/her power in managing the trust property.
In most instances, living trusts are revocable and one major advantage of creating a living trust is to avoid probate proceedings which can be very tedious, costly and could lead to exposing private financial details of the settlor’s estate to the public since the outcome of probate proceedings are made public.
Procedures of incorporating a Trust
The Act provides for procedures to follow when incorporating a trust. Trusts are regulated by the Registration Insolvency and Trusteeship Agency (RITA). The process commences with the submission of a formal request to the Administrator General seeking incorporation as a body corporate. This involves completing application form number (TI.1) and remitting an incorporation fee of Two Hundred Thousand Tanzanian Shillings (TZS 200,000/=), along with the following documents::-
Secondly, the Administrator General may require furnishing of an oath or any other document that will stand as evidence for verification of the statements and particulars in the application. Thirdly, the applicant is then issued with an invoice to make payment for the incorporation fees. Thereafter, if the Administrator General is satisfied that the application process has met the set-out criterion, then the trust will be incorporated and a certificate of its registration will be issued in that regard.
Taxation of a Trust
If a trust originates from a resident in Tanzania, the distributions of the trust assets to its beneficiaries are exempted from income tax, that is, the beneficiary does not have to include the distribution in their income. However, if a trust is not resident in Tanzania, the beneficiary must include the distribution from a trust as part of his/her/its income as prescribed under section 52(2) of the Income Tax Act, Chapter 332, of the laws of United Republic of Tanzania which reads:-
Distributions -
(a) of a resident trust or unit trust shall be exempt in the hands of
the trust's beneficiaries; and
(b) of a non-resident trust or unit trust shall be included in
calculating the income of the trust's beneficiaries.
Liability of a Trustee
A trustee is liable for the breach of the terms and conditions contained in a trust deed and for such to happen the trust must have suffered loss. Where a trustee has been made liable for breach of trust, which was not due to his/her fault, he/she can make a claim for reimbursement from other trustees (if any) and where there is no trustee, he/she may claim to court with competent jurisdiction. A trustee is not personally liable for torts committed while administering a trust unless a trustee was personally liable.
Termination of Trust
Deregistration of a trustee occurs when:-
1. a settlor may exercise a power of revocation and it can also be revoked by settlor’s will;
2. a trust is induced by fraud, duress, undue influence or mistake hence invalidity declaration;
3. lapse of time which marks expiration of a trust duration;
4. consent of beneficiaries; and
5. failure of material purpose such as destruction of trust property.
PREPARED BY: MAGRETH BENSON- Intern
Note: This is not a legal opinion, and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
