A Living Trust as an Estate Planning Tool

Apr 22, 2016 | Estates & Wills

A trust has stood the test of time as a versatile estate planning tool and has been in use for many years to protect the assets of its beneficiaries.

A trust has stood the test of time as a versatile estate planning tool and has been in use for many years to protect the assets of its beneficiaries.

An inter vivos trust can be a beneficial instrument through which people can plan and provide for the future of their families without having to pay an arm and a leg in respect of estate duty upon their passing.

In South Africa, there are two types of inter vivos trusts, namely discretionary trusts and vested trusts. With a discretionary trust, the trustees are given full discretion regarding the distribution of assets and income to the beneficiaries. In the case of vested trusts, the trust deed sets out the manner in which assets and income must be distributed to beneficiaries without reserving that right for the trustees.

Who are the parties to a living trust?

In order for a trust to be created there must be three parties:

  1. The founder: the person who creates the trust
  2. The trustees: the ”managers” of the trust, and
  3. The beneficiaries: the person(s) for whose benefit the trust is created.

Forming a living trust.

  1. A trust deed is usually drafted with the assistance of an attorney specialising in trust law. This document both creates and forms the basis of the living trust.
  2. The trust deed must be signed by the founder and the proposed trustees, who have accepted such appointment in writing, and must subsequently be registered with the Master of the High Court in whose area of jurisdiction the trust assets fall.
  3. Upon registration of the trust deed and payment of the prescribed fee, the trust is created.It is important to note that after creation of the trust, the Letters of Authority must first be obtained prior to the trustees acting in such capacity.

What are the advantages of a living trust?

  1.  Estate planning A trust can assist in the creation of flexible succession arrangements. With an inter vivos trust, the assets owned by the trust will not be affected by complex and lengthy legal procedures after your death. For example, assets in a trust will be accessible by the remaining trustees after your death. In contrast, your personal estate assets are “frozen” during the estate administration process that follows on your death.
  2. Flexibility of a living trust Every person is unique, as such a discretionary trust can accommodate any changes to one’s family and financial circumstances.
  3. Family asset management Beneficiaries (especially the young, a prodigal or those with mental or physical disabilities) who are not in a position to manage assets by themselves can be freed of this burden.
  4. Protection of assets If a trust is established and administered properly, it can assist you and your family in protecting your assets from creditors in times of personal financial crisis. Clearly the adaptability and flexibility of a trust are key considerations when it comes to estate planning. The inter vivos trust is an effective estate planning tool and may be just what you are looking for.

Contact us for further information on registering your trust.