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Financial planning

Overview
 

Protecting your assets through
a trust

Trusts remain very popular arrangements through which many South Africans benefit from holding assets without physically owning them, most often with a view to passing the value of those assets on to beneficiaries. A key element in both the popularity and effectiveness of such trust structures is that the founder of the arrangement can appoint one or more trustees who are tasked with administering the trust in the best interests of its nominated beneficiaries.

What is a trust?

Essentially, a trust (sometimes referred to as a trust fund) is a formal transfer of assets via a legal document to a trustee or multiple trustees, with instructions to hold the assets for the benefit of others (beneficiaries). A key element in both the popularity and effectiveness of such trust structures is that the founder can appoint one or more trustees who are tasked with the administration of the trust.

Living trusts

Essentially, a trust (sometimes referred to as a trust fund) is a formal transfer of assets via a legal document to a trustee or multiple trustees, with instructions to hold the assets for the benefit of others (beneficiaries). A key element in both the popularity and effectiveness of such trust structures is that the founder can appoint one or more trustees who are tasked with the administration of the trust.

Testamentary trusts/will trusts

This type of trust come into effect after death and is provided for in a will. In most cases the reason for creating such a trust evolves from a need to protect the ultimate beneficiaries, such as minor children, surviving spouse, and children or other dependants who cannot look after their own affairs. The provisions of the trust are set out in the will and, for all intents and purposes, the trustee is legally obliged to enforce these provisions. The provisions will usually provide for the termination of the trust on fulfilment of certain conditions.

Here are some of the reasons for using a trust:

  1. Asset management, protection and estate planning during your lifetime. One of the main reasons for forming an inter vivos Trust is estate planning. Assets are moved into the trust, either by way of a loan or donation. Proper planning and appropriate advice are required.
  2. Protection of minor children or beneficiaries with developmental disabilities. Trusts can be used to protect the interests of children until they are old enough to handle their own financial affairs. A separate trust can be managed for each individual child to avoid unfairly favouring one child over another in respect of funds. The same applies for beneficiaries with developmental disabilities who need assistance in managing their affairs.
  3. Limited financial skills of dependants or beneficiaries. Trusts can be used to protect the interests of dependants or beneficiaries with limited skills in financial matters.
  4. Continuity/perpetual succession. When a person passes away his/her estate might take months to be finalised. Beneficiaries will only be able to access estate assets once the executor has gone through the required process and formalities. A trust, however, is a separate vehicle and will not be affected by the death of the founder; it will continue to operate as before. Furthermore, the will of a deceased person becomes a public document on death, whereas a trust remains a private affair and is not open to public scrutiny.
  5. lnsolvency of beneficiaries/claims by creditors and matrimonial disputes. The trust property does not form part of the personal estate of the beneficiaries until vesting takes place, in other words until the beneficiaries actually receive the property. In a discretionary trust, this only occurs when the trustees exercise the option to distribute assets to beneficiaries. Assets held in trust are therefore protected from the claims of the beneficiaries' creditors.
  6. Indivisibility of assets. Certain assets, such as farm property or certain business entities, are not always suitable for dividing among beneficiaries. A trust is an ideal vehicle for taking ownership of such assets, keeping the assets intact and allowing the beneficiaries to fully appreciate the benefit of the assets concerned.
  7. Tax implications. In certain circumstances, income from a trust can be split between beneficiaries, thereby reducing tax liability. However, it should be kept in mind that where income is accrued to certain beneficiaries, it could be taxed in the hands of the donor in accordance with Section 7 of the Income Tax Act. It is important to note that trusts should never be created for the sole purpose of deriving tax benefits.

FNB Fiduciary specialises in the formation and administration of a wide variety of trusts. As professional trustees, we are experts in navigating clients, co-trustees, and beneficiaries through the complex trust landscape.

Trusts can be created for a wide range of purposes and objectives. We can assist with creating and administering the following trust solutions:

  • Family trusts - For asset management and protection, plus estate planning during your lifetime.
  • Testamentary trusts - For protecting the inheritance of your heirs, including minor children.
  • Charitable/Philanthropy trusts - Managing and receiving donations to public benefit organisations by individuals or through corporate social investments.
  • Settlement trusts - Managing funds from court orders or other settlements.
  • Curatorship - Managing the assets of individuals that have legally been declared incapable of managing their own affairs.
  • Shari'ah-compliant trusts - Testamentary and living trusts adhering to strict Islamic Shari'ah guidelines.
  • Trustee secretarial services - Managing the administration of trusts on behalf of trustees.

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