Navigating wealth and its creation
Knowing all there is to know about value of trusts, in life and death
Trusts are tools to protect and grow wealth for your beneficiaries during and after your lifetime. A trust is an important financial and estate planning tool that, together with your will and other structures, can help protect your personal and business assets during and after your lifetime for your intended beneficiaries.
It is critical to get expert advice so that you choose the right trust for your needs and circumstances, because different trusts have different purposes, benefits and limitations.
There are two basic types of trusts, designed to meet specific needs: testamentary trusts and Inter vivos trusts (also called a living or family trust).
What is a testamentary trust?
The terms of this trust are written into your will and only come into existence after your death. Your will therefore forms the basis of the trust document. In many instances, this type of trust seeks to protect the interests and inheritance of minors or vulnerable members of the family (such as elderly parents or spendthrift major children) following their parents death, or the death of the financial provider, and is therefore appropriate in these circumstances. Since the trust is only established on your death, it does not provide any protection for your assets during your lifetime. The trustee is the person who will decide how the inheritance set aside for your children and/or vulnerable members of your family will be managed, and how much money should be spent on their care and maintenance until the case of minor children reach a specific age.
Although you can nominate the same person to be both trustee and guardian of your child, this can cause a conflict of interest.
It is advisable to appoint an independent person as a trustee.
Inter vivos trusts:
You can set up this type of trust at any time. The trust document will be a trust deed which will contain the terms of the trust.
It is a wealth structuring tool that is used for various purposes, and this type of trust protects assets across generations if you want to leave an inter-generational legacy and can enable you to support beneficiaries financially during and after your lifetime.
You have a say in how the trust deed is drafted to ensure it reflects your wishes as to how the trustees should manage the trust assets.
The trustees are bound by the deed and trust legislation and can only act within the powers this gives them. You can determine which beneficiaries may receive an income from the trust and which may receive capital.
Alex Simeonides, the CEO of Capital Legacy, said it is a global misconception that trusts are only for the rich, and the benefits of a trust are only enjoyed by “trust fund babies”.
“This misconception is perpetuated by misinformation and often ignorance. Testamentary trusts are trusts you create through your will and when set up correctly they provide financial provision, safeguarding of assets, and certainty for beneficiaries, until the beneficiaries are able to manage their inheritances effectively on their own,” he said
“This means they enable “financial guardianship” for your beneficiaries, much like a guardian who will care for your children.”
According to Nedbank, a testamentary trust may be suitable for you if you:
• have children below the age of 18 who are still financially dependent on you; and/or
• have vulnerable members in your
This misconception is perpetuated by misinformation. Testementary trusts you create through your will
family such as elderly parents, spendthrift major children, children suffering with substance abuse; and
• want peace of mind that your children/family members will be taken care of when you are no longer able to do so yourself through the safeguarding and optimal use of their inheritance.
An inter vivos trust may be suitable for you if:
• you have growth assets that you want to remain in your family for future generations and that you want to protect from poor decision-making by beneficiaries;
• you want to support beneficiaries during your lifetime and after your death by providing for them financially;
• you want to ensure that your death has minimal impact on your assets by providing for seamless continuity of these assets on your death;
• you want to protect your assets both during and after your lifetime; and
• you want to limit the impact of costs, such as executor’s fees and estate duty on your death.