How can you ensure that the assets you leave behind at death are protected and safeguarded for your heirs?

This can be achieved with a testamentary trust which is created upon the death of an individual (the testator/testatrix). The terms of the trust are set out in detail in the Will of the testator/testatrix who is planning his/her estate. These terms will typically set out how an inheritance or specific assets will be managed by appointed trustees to the benefit of the beneficiaries named in the Will.

Trusts are known to facilitate effective estate planning. That said, setting up a trust should be carefully considered and not just implemented blindly.

So how do you know if a trust is the best option for you?

The advantages of a trust

Saving in estate duty

Peace of mind
One of the main advantages of a Testamentary Trust is that you will have peace of mind that your heirs’ inheritance is administered, invested and managed according to you wishes.

Control over assets
Should you not make provision for a Testamentary Trust to be set up at the time of your death, your minor child’s inheritance will be paid to the Guardian Fund of the Master of the High Court for safekeeping. This means that you will have no further control over what happens to those assets.

Managing a beneficiary’s affairs
Trusts are especially effective in instances where a beneficiary cannot manage their own financial affairs as the trustees will manage the beneficiary’s inheritance on their behalf.

Asset protections
Once assets have been transferred to a trust, the creditors of a beneficiary will not be able to lay their hands on the beneficiary’s inheritance.

Continuity
A trust can span multiple generations. When any trustee dies, the trust and any assets owned by it, remain unaffected.

The disadvantages of a trust
Hight income tax
A trust is subject to income tax at a flat rate of 40% as well as capital gains tax.

Transfer duty
It is important to bear in mind that transfer duty and transfer costs will be incurred to transfer properties to the trust. This cost is usually paid by the trust. When the trust dissolves and the properties in the trust is transferred to the heirs, transfer duty and transfer costs will once again have to paid.

Costs
You need to weigh up whether the costs of establishing a trust may exceed any estate duty saving. The purpose of setting up the trust may be the determining factor. The costs of setting up and running a trust will include legal fees for drawing the trust deed and registering the trust, trustees’ fees for administering the trust, and audit fees.

In conclusion, in order to determine whether a trust is right for you, you have to take into account the type of assets owned and the value thereof. If you do not own property or if you intend for the property to be sold at your passing, a trust may not be the best option for you as the cost of setting up the trust may outweigh the advantages thereof.

Article by Lizel van Deventer LLB (NWU) Associate - Gerrie Ebersӧhn Attorneys

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