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Estate planning: Should you start a trust?
Trusts are tools to protect and grow wealth for your beneficiaries during your life.
A trust is an important estate-planning financial tool. Together with your will and other structures, it can help protect your personal and business assets for your beneficiaries during and after your lifetime.
Different trusts have different purposes, benefits and limitations. It’s therefore essential to get expert advice, so that you can choose the right trust for your needs.
What are the main benefits of a trust as a wealth-structuring tool?
Generally, trusts provide flexibility and continuity, facilitate effective distribution of your assets when you pass away, enable the protection of dependants and vulnerable beneficiaries, and can protect assets from being seized.
What is a trust?
A trust is an arrangement by which ownership of a person’s assets is transferred to another, to be administered for the benefit of others. There are 3 key parties to a trust:
Founder/Donor/Settlor |
Trustees |
Beneficiaries |
They create the trust and transfer all (outright and unconditional) ownership and control of identified assets to the trust. |
They administer and control the assets on behalf of the beneficiaries. |
They may benefit from the trust. |
Generally, there are 2 types of trusts:
- Testamentary trusts formed in terms of your will
The terms of this trust are set out in your will and the trust comes into existence only after your death. Your will becomes the trust instrument. 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 children who are over 18) after the death of their parents or financial provider. It does not provide any protection for your assets during your lifetime.
- Inter vivos trusts formed during your lifetime
You can set up this type of trust, also called a living or family trust, at any time. The trust instrument will be a trust deed that contains the terms of the trust. It is a wealth-structuring tool that is used for various purposes and protects assets across generations, if you want to leave such a legacy. It can also support beneficiaries financially during and after your lifetime.
You can set up trusts for different purposes, such as asset protection or for charitable causes.
Do you need a trust?
Here are some situations where trusts may or may not be the answer.
Example 1
Circumstances and needs
- Megan and Harry are married in terms of an antenuptial contract with the application of the accrual system.
- They have two children under the age of 18.
- During their marriage, Megan acquired a business interest in her personal capacity and a share portfolio.
- Harry owns a share portfolio and is a salaried employee.
What are the benefits of a discretionary inter vivos trust for them?
If they transfer the share portfolios into a trust, they will achieve the following:
- Separation of assets.
- Protection against insolvency.
- Continuity – assets will not form part of their estates.
- Pegging of the growth in the value of assets.
- Protection for dependants.
- Generational planning.
Example 2
Circumstances and needs
- Alfonso is 28, single and does not have any children.
- He owns a primary residence valued at R2 million.
- He has spent his bonuses on travel and has no investments.
Does Alfonso need a trust?
No, Alfonso would not benefit from the primary-residence exclusion if the trust disposed of the property. The costs of establishing and funding a trust, together with the ongoing costs, do not warrant the establishment of a trust at this stage.
Example 3
Circumstances and needs
- Emily is 45, single and has a son, Victor, who is not financially responsible.
- He has not been able to stay employed for long periods and is easily influenced by his friends.
- Emily is concerned that Victor may not be able to manage his inheritance when he receives it.
Should Emily consider establishing a trust?
Yes, Emily can either leave the assets to a testamentary trust in terms of her will or create an inter vivos trust during her lifetime. Victor would be a discretionary beneficiary of the trust. The assets would be protected in the trust, and Emily will be protecting Victor from himself and anyone that may influence him.
Note: These are examples for the purposes of illustration only
Before you make any decisions about starting a trust, get proper advice that considers your circumstances and needs, and that unpacks the costs of transferring assets to a trust, such as capital gains tax, transfer duty and securities transfer tax.
You can set up trusts for different purposes, such as asset protection or for charitable causes
Consider using Nedgroup Trust
If you want to set up a South African or international trust, here are 3 reasons to do so through Nedgroup Trust:
- Independent trustee expertise
There is a growing spotlight on the importance of the independence of trustees. We ensure that there is no potential for conflict of interest and that trustees make objective, independent decisions.
- Expertise to deal with complex legislation
Trust legislation is becoming increasingly complex. We have the depth and breadth of skills and resources to provide focused expertise.
- Transparency and accountability
You will understand who does what for you, how you pay for these services, and what you pay for the distinct services we provide.
Why Nedgroup Trust?
We provide peace of mind to trust founders, trustees and beneficiaries.
We have offered great service since 1834. Over the years we have continued to invest in expertise, processes and systems to ensure we provide reliable trust administration and corporate trustee services for a range of clients.
Speak to your financial planner if you would like to learn more about setting up a trust.
If you’re not a client yet and want to find out more about how we can help you, we would love to hear from you. Please complete our online contact form , and one of our consultants will call you back.
