Trusts are a popular instrument in estate and financial planning. The use of trusts in South Africa has gained momentum but not always for the right reasons. A unique characteristic of a trust, especially in the estate planning context, is the separation of ownership from the benefits of ownership. This particular characteristic makes it an ideal vehicle to achieve certain goals in your estate planning.
Trusts are used for various purposes and are formed in two ways; in the will of an estate owner, “Testamentary trust”, which is only formed as part of the liquidation of the deceased estate owner’s estate and is generally formed to achieve a certain goal as identified in the process of planning the estate owner’s estate, prior to death, or during the lifetime of the estate owner, “Inter vivos trust”.
You should consider a Testamentary trust in the following circumstances:
- In the event of the simultaneous death of parents of minor children;
- Where heirs are only to receive the benefit from their inheritances at a future date;
- Where dependants need to be protected from their own inability to handle their own financial affairs: mentally disabled persons, the maintenance of a surviving spouse and tax problems;
- Property that needs to be preserved for future generations.
- To peg the growth of assets outside the estate for estate duty purposes;
- Where the founder of the trust wishes to transfer assets to the trust for the benefit of the trust beneficiaries without having to transfer ownership of the assets into the name of the beneficiaries;
- Protection of assets for the business owner against the claims of business creditors;
- Assets can be bequeathed directly to an existing inter vivos trust for the benefit of the trust beneficiaries to ensure that the heirs may enjoy the benefits of the assets without the burden of ownership.
An inter vivos trust is used in the following circumstances:
Trusts are also formed to achieve a charitable purpose with certain income tax benefits if it qualifies as a Public Benefit Organisation in terms of the Income Tax Act.
Getting the appropriate advice: What about an online trust, can this ever be sufficient? What are the specific issues affecting trusts and their application?
Trusts are often formed and used for the wrong reasons without taking a holistic view of the estate owner’s entire estate and financial plan.
The nature of each trust and its purpose, will determine whether the trust beneficiaries have vested rights to the trust capital and/or income or contingent rights which are subject to the trustees exercising their discretion in favor of the trust beneficiaries.
A trust is an important legal document that deals with the rights of beneficiaries and the obligations of trustees. A wrong understanding or application of legislation can have dire consequences for both advisor and you. Trust deeds should be drafted by persons with the required expertise in estate, trust and tax law. It should always be drafted with the specific needs and unique circumstances of each individual in mind. The online version of a trust deed will be sufficient for some people but will not suffice as part of a properly constructed estate plan.
The office of trustee comes with a great deal of responsibility and the dereliction of that duty carries with it personal liability. The current legal system is currently inefficient to ensure compliance with the many duties and responsibilities attached to the office of trustee. It seems that all and sundry are prepared to act as trustee on a trust of a friend, business associate or family member. Only people who are independent, capable and have the appropriate background should act as a trustee.
Do not think, as so many believe, that a trust can solve all problems, it can’t.
It is only when you have disclosed and discussed all the relevant circumstances relating to your financial affairs that an expert opinion can be given on whether a trust is the appropriate estate planning vehicle for you or not.
Be clear, mistakes in the trust deed can have serious consequences!
If you feel you may need a trust, a will, a review of one or both, contact me and I will ensure you get sound professional assistance.