A non-governmental organization can be registered in five different forms in Uganda: Company limited by guarantee, Institution based association, District based association, Nongovernmental organization (under NGO Act), and as aTrust.
What is a Trust?
A Trust is a legal arrangement whereby control over property is transferred to a person or organization (the trustee) for the benefit of someone else (the beneficiary). A Trust can either be a private trust or a public charitable trust. A trust is governed by the terms of the trust document, common law principles, and the Trust Act.
Private trusts are governed by the TrustsAct (1882) and are used for private purposes, such as running a private estate or institution.
Private trusts are not given any tax benefits by the Government of Uganda. If you want to do some charitable work for public –you can set up a public charitable trust. Uganda does not have a national level law to govern charitable trusts.
The trust is today recognized in many civil-law countries and often able to build bridges between different legal systems. It
has become common to own assets in more than one country, like holiday homes abroad or bank accounts, shares, companies or other investments.
Typical Characteristics of Trusts
The property of a business trust is managed and controlled by trustees who have a fiduciary duty to the beneficiaries to act in their best interests. Profits and losses resulting from the use and investment of the trust are shared proportionally by the beneficiaries according to their interests in the trusts. Trusts are created for a variety of reasons, including tax savings and improved asset management.
- Limited liability
- Continued existence–the trust can continue even if there is a change in trustees
- Limited regulations
- A trust doesn’t pay tax on profits distributed as benefits to beneficiaries
- However, the beneficiaries are taxed on their applicable tax schedule
- A trustee cannot expose the assets to business risk
- The lack of regulation and disclosure creates risk for insiders and third parties who deal with the trust
- Information about the trust is not publicly available
- Trustee and other parties are not personally liable for debts of the trust
Reasons To Form A Trust
The trust is today recognized in many civillaw countries and often able to build bridges between different legal systems. It has become common to own assets in more than one country, like holiday homes abroad or bank accounts, shares, companies or other investments.
Below are some of the reasons and benefits of forming or transferring your assets in a Trust;
1. To avoid seeking Court authority inthe event of death of a family member
In the event where someone wishes to distribute his or her assets upon death, they would have to prepare a Will and store it with different people.Different people have the capacityto store or keep the Will. These include the clergy, Banks, lawyers, elders in society,trusted friends. In the case that there is a Trust registered, then the family may not have the need for a Will.
2. Preserve family wealth and legacy
The assets transferred into a Trust are usually managed in respect to the terms of the Trust under the Trust deed. This means that the probability of disposing of these assets is limited and therefore protected.
Members of the family can then have access to revenue earned from the property under the Estate. Trusts also protect the family legacy, especially where families register the Trust in the names of family members that have passed on. It is prestigious especially in certainsocieties.
3. Protection of vulnerable dependents
The well-being of vulnerable, i.e. minor, disabled or unstable dependents is an essential concern for parents.Planning ahead for one’s own or dependent’s disability can make all the difference.
The terms of the trust can be drafted to provide support for such dependents, with sufficient flexibility to adapt and without forgetting those that may need less assistance. A trust can also pay for the costs of education and health.
The well-being of vulnerable, i.e. minor, disabled or unstable dependents is an essential concern for parents. Planning ahead for one’s own or dependent’s disability can make all the difference. A trust can also pay for the costs of education and health.
4. Protection of vulnerable dependents
A trust can provide beneficiaries protection from lawsuits, creditors, or divorce. Establishing an irrevocable trust means a future creditor or claimant cannot satisfy a judgment against the assets held in that trust.
A trust can also protect the interests of a minor child and spouses from dubious family members by setting up guidelines for distribution.
5. Reduce family conflict
Unlike a Will, challenging a trust is difficult and costly. Having a trust in place that clearly articulates your wishes for your beneficiaries and heirs reducesthe potential for misunderstanding, making it more likely that all parties will embrace and respect your wishes.
6. Tax Incentives
A Trust is one of the entities under the Ugandan law that can seek and be granted tax exemption, because by its nature, it is regarded as a charitable organization. This will help to reserve any funds to build the assets of the Trust, and the benefits are enjoyed by the Beneficiaries.
A charitable trust is a popular way to donate to charitable organisations and designate that the assets are eventually benefiting a specific organisation or objective. The assets are protected in case the settlor’s family would decide to challenge the charitable objective after his death.
Whether a trust offers legitimate benefits in the area of tax or confidentiality exclusively depends on the applicable rules in the country of residence of the settlor and beneficiaries. These rules are subject to frequent hanges, which is why tax and confidentiality should not be the main driver for establishing a trust.
Steps involved in Registering a Trust
Make a list of the assets you want to place in the trust. The trust can hold any type of asset including cash, jewellery, heirlooms, securities, income-producing assets and real estate.
The assets make up the core, or corpus, of the trust. You will need the name in which each asset is held, the name and location of the institution holding the asset — such as a bank or brokerage firm — and the account number.
Decide if you want to serve as the sole grantor or if you want another person, such as a spouse or a child, to serve as a grantor along with you. The trustee is the person or entity, such as a bank or trust company that administers the trust in accordance with the trust documents.
Grantors often name themselves as the sole trustee. Consider if you want to name a successor trustee who will manage the trust= in case you are no longer capable of carrying out your duties.
Identify the beneficiaries along with the assets you want to leave to each one. Use the full legal name of each beneficiary whether the beneficiary is a person, a corporation or a charity, along with their current address. Be extremely specific when leaving assets to each beneficiary.
For example, if you are leaving shares of stock to your cousin, list the cousin’s full legal name and address, the name of the company that issued the stock, the number of shares, and the name and location of the firm holding the shares to avoid confusion.
Draft the trust deed to include the name of the grantors, trustees, beneficiaries and the assets being placed in the trust. At the end of the document, have a signature block where each grantor and trustee can sign. The trust needs to be witnessed at signing.
Be sure the witnesses and notary are uninterested third parties, to avoid any potential conflict of interest. Fund the trust by retitling the assets from your name into the trust’s name.
The Trust Deed
Trusts are registered using a document called TRUST DEED. This document contains all the information about the Trust and is printed/written/typed on plain A4 size papers. Along with these papers you would need to attach Non-Judicial stamp paper (which you can get from a notary or the lawyer).
All the Trustees and witnesses will have to give thumb impressions and signatures on these papers. All in all, you will need help of a notary or lawyer to prepare the papers.
You also need a No-Objection Certificate (NOC) from the owner of the property where the registered office of the trust is to be situated. If you’re the owner of the property, then you don’t need to worry about NOC.
Items to Mention in the Trust Deed
Following elements must be mentioned in the Trust Deed document:
– Name and address of the Settler (Settler is the person who is setting up trust)
– Name(s) and address(es) of the other trustees
– Name of the trust
– Minimum and maximum number of trustees your trust can have
– Address of the registered office of the trust
– Objectives of the trust
– Powers and duties of the Trustees
RULES AND REGULATIONS OF TRUST
For registering a trust, you need minimum two trustees (i.e. one settler and another person). You can decide the maximum number of trustees and this number must be mentioned in the trust deed. All the trustees together are called Board of Trustees. This board collectively governs the trust.
Unlike societies, in case of trusts all or some of the trustees can be related persons (i.e. they may belong to the same family) Trusts are irrevocable –unless it is mentioned in the trust deed. This means that the trust cannot be wound up.
Trustees are usually life-long members or their tenure is specified in the deed. Electoral process is not involved in the appointment of trustees. Board of Trustees can also have various designations for trustees. Common designations are Chairperson and Managing Trustee.
Trustees cannot draw any remuneration from the trust fund. However, they may take reasonable compensation for the professional services they provide to the Trust.
Profits earned by the Trust (e.g. interest gained from bank) cannot be distributed among the trustees.
Trust Deed can be amended through a Supplementary Trust Deed. Most important part of the Trust Deed that you should pay special attention to is objectives of the trust. You should be as thorough as possible in writing down trust objectives so that you can function smoothly without any problems.
At the time of registration, only the Settlor and two witnesses are required to be present in front of the Sub-registrar under whose jurisdiction the registered office address comes. Sub-registrar will check IDs of these people.
After that the Trust Deed will go to the counter where data entry takes place. In the end, Settlor and two witnesses will be photographed.
After about one week of submitting the papers, you can go back to the registrar’s office to receive a certified copy of the Trust Deed.
Taxation of Trusts
Trust income is exempted from income tax. But to avail this facility, after registration, you need to acquire a certificate of exemption from Uganda Revenue Authority.
Donations to the public charitable trusts are also exempted from tax (i.e. the donor will not have to pay tax on the amount he donates to the trust). For this, you need to acquire certificate from Uganda Revenue Authority.
Use a Lawyer
It is recommended that a reputable firm of attorneys, with experience in trust law, should be approached.
The attorney will advise on the drafting of the trust deed, registration of the trust deed and obtaining letters of authority. Nobody may act as a trustee until authorized.
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