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Trusts are generally more beneficial for people who have built up some wealth or have a number of businesses, and help to preserve wealth for future generations.
It however all depends on the circumstances of an individual and what they would like to achieve, which will then indicate whether a trust is the correct vehicle to use or not."
Mr Nel advises that the following important factors be considered when setting up a trust:
The importance of having a Trust
Having a trust is an important and valuable structure for estate planning and if used wisely, the trustees of the trust can achieve the goals of a person by managing and distributing assets while his alive and after he has passed away.
For
an individual who is starting to accumulate assets and has a family they would
like to provide for, a trust is an essential element of a financial plan.
Benefits
of a Trust
The
trust can purchase assets directly from third parties, or an individual may
dispose of his existing assets into it.
It also gives you flexibility in terms
of how your assets should be looked after and stipulate who gets the income
from them and what should happen with the assets when the trust is terminated.
The estate planning benefits of not having to pay estate duty on these trust
assets when you die are also worthwhile, and a trust should always be formed
with these benefits and the relevant tax rules in mind.
Tax rules can change
very quickly and an individual should not set up a trust mainly from a tax
point of view.
How
to set up a Trust
In
order to set up a trust, you need to have a deed nominating trustees who will
hold and manage the assets you place in the trust. The trustees ensure that
your wishes are carried out with regards to beneficiaries.
In the deed, you
define the criteria according to which the trustees must act.
A
trust is only as good as the specialist who sets it up. A professional will be
upfront and honest with you about your needs.
They should assess your financial
situation and make appropriate recommendations. Using the correct experts to
set it up will ensure your needs are met for your entire life.
Types
of Trusts
The
two most commonly known trusts are: Living trusts or "Inter vivos" trusts
and Testamentary trusts or "Mortis Causa" trusts.
An Inter vivos trust takes
effect during your lifetime. A Testamentary trust provides for your estate
after your death. However, you can elect to keep the living trust in place
after your death by having such a stipulation in the deed.
This provides
uninterrupted asset management and financial protection for your family.
Costs
of a Trust
Trusts
can be complex and time-consuming to administer. It costs money to set them up
and there are generally ongoing legal and accounting fees which are not
regulated by legislation.
Different organisations charge different amounts both
for the establishment and ongoing management of a trust, so gather all
information necessary before setting up a trust.
Legalities
with Trusts
All
trusts need to be registered with the Master of the High Court. A legal
document called a trust deed needs to be registered in terms of the Trust
Property Control Act.
The trust deed will specify in detail what the trustees
can and can’t do with the assets under their control. Trusts must be set up
within the ambit of the law and have legal protection.
No person can act on
behalf of a trust before the Master of the High Court has appointed him as a
trustee. All such actions will be null and void and cannot be ratified.
Many
people believe that a trust can be used to avoid legal responsibilities. For
example: if you currently have debt problems, you are able to set up or use a
trust to transfer your assets into it in order to avoid paying creditors.
The
law will identify this and you will still be responsible for settling your
debts. However, you can be proactive and form a trust with the view of
protecting your assets from future creditors but this can only be achieved if
you have a clear financial record and are managing your finances accordingly.
With the majority of cases the assets of the individual are disposed of to a
living trust with the trust owing the individual an amount equal to the selling
price.
The amount owing or loan account may still be attached by the creditors
of the individual as it forms part of the assets.
Trustees
You
can be a trustee and also a beneficiary of your own trust, but you should not
be the only one. It is best for the trust to have two or preferably three
trustees.
As long as the trust was set up correctly and the trustees run it for
the good of all the beneficiaries, it will protect you from creditors and offer
the opportunity to pay less in estate duties when you die.
"Setting
up a trust will protect your valuable assets and wealth built up over time. It
will also help look after your loved ones after your death and assure peace of
mind," concludes Mr Nel.
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