The Lowdown on Trusts

A3Trusts are one of the oldest forms of asset protection, dating back to the middle ages, and still form an integral part of financial planning

Their complexity and structures have deepened over the centuries, so if you’re thinking of establishing one, you should consult an expert in the field, otherwise you could enter into a world of disaster. We recently heard of a gentleman who committed suicide because he was experiencing financial difficulties but could not access his assets as they were tied up in trust.

Having said this, provided you seek advice from a trust expert and you thoroughly understand the implications involved, a trust can assist you greatly and reduce your risks.

What type of trust should you choose? 

A testamentary trust is formed upon death for the benefit of beneficiaries. If you have minor children or dependants with special needs, you can use this type of trust to continue supporting and providing for them when you are no longer able to. The trust does not exist before your death, it is founded by the executor of your estate upon your death.

The trust deed is contained in your will, which stipulates which assets are to be transferred into the trust. The executor follows the instructions in your will and arranges for the necessary assets to be transferred into the name of the trust. Assets include property, shares, cash from the sale of other assets, investments, etc.

An inter vivos trust is formed during your lifetime and can continue after your death. Usually you will form this type of trust to protect your assets from creditors, reduce your estate duty liability, pass down family wealth or provide for minor or disabled heirs. It’s important to remember that you relinquish control and ownership of your assets when you sell or donate them to a trust.

Trust facts

  • A trust deed forms the foundation of the trust and includes all of the information required to run and administer the trust. In laymen’s terms, the trust deed is a contract which outlines the intentions of the founder and acts as a guideline for the trustees who act for the benefit of the beneficiaries.
  • A testamentary trust may either be discretionary or vesting. A discretionary trust gives the trustees full control of the assets. A vesting trust makes the beneficiaries part or full owners of the assets. The trustees manage the assets on behalf of the beneficiaries.
  • Three parties are required to form a trust, namely the founder of the trust, the trustees, and the beneficiaries.
  • There are both tax advantages and disadvantages associated with trusts. A trust expert would be able to advise you in this regard.
  • Beneficiaries of the trust may receive income and/or capital from the trust – this is stipulated in the trust deed.
  • Trustees act as the decision-makers and administrators of the trust. The trust deed will indicate how many trustees are required to run the trust. There is no minimum or maximum, although in practice we find the average is usually three trustees. Trustees may be resident outside the republic of South Africa, with the consent of the Master of the High Court.
  • The Master of the High Court registers trusts and provides each trust with a unique registration number beginning with IT. Letters of Authority are issued by the Master’s office and include the registration number, name of the trust, and the names of the trustees. If a trustee resigns or dies or is replaced, new Letters of Authority must be obtained from the Master’s office.
  • It’s necessary to keep accounting records for trusts which, depending on the complexity of the trust, may incur auditing, accounting or bookkeeping fees. 

FPM acts as trustees for many of our clients’ trusts and our in-depth knowledge, experience and expertise ensures our clients get the peace of mind they deserve.

Should you have any questions regarding trusts, please contact me on 011 778 9353 or e-mail me at gemma@fpm.co.za.

GEMMA DE LUCA

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.