Financial Planning

The importance of trusts

A trust is a useful structure that protects assets, either while you are alive (a living trust) or once you have passed on (a wills trust). It provides continuity for an estate after death and together with the instructions of a will, serves to make sure that dependants are able to benefit from the trust. A Trust protects your assets and it can save on estate duty.

A living trust is set up while you are alive and is managed by a minimum of three trustees, one of which must be independent. Generally, a living trust is for large assets and trustees must have some knowledge and keep good records. When the person whose assets are housed in the living trust dies, the trust continues and a new trustee is appointed. This is ideal, particularly where continuity is important.

A will trust is a trust that is set up following instructions contained in a will. Here a simple written instruction is all that’s required and no separate documentation is required. The will and trust go hand in hand, with the will instructing not only the creation of a trust, but also how the assets in the trust must be distributed. A will can also instruct the executor in terms of the will to leave assets to a living trust.

There is an important link between a will and a trust. A will is a legal document that serves to dispose of assets and a trust is a vehicle that manages your assets during and after your lifetime. A Trust doesn’t give instruction, it protects assets.

Some important facts to consider when planning your trust:

  1. It’s absolutely essential to have a will. Visit your bank for more information if you need advice.
  2. A wills trust is essential if you have minors. In the absence of a trust, your estate will be placed in the Guardian’s Fund (a state fund). This fund, which doesn’t charge, is managed by the High Court and funds are distributed every quarter. If you will was with your bank, for example, Standard Bank, the bank looks at the needs of your children from time to time to ensure there is enough cash (estate funds permitting). Banks charge from 1%for an administration\service fee, depending on the value of the estate.
  3. For a living trust, make sure that your assets are viable and that the living trust is feasible. Living trusts attract higher tax rates, management fees and need a level of diligence and expertise.
  4. For a living trust make sure that your trustee is independent and keep proper administrative records of the trust. If this is not done properly, the master of the court can overturn the protection offered by the trust, rendering this null.

To find out more about Trusts, visit your local bank branch, where you can source information about financial planners who offer this expert advice. Financial planner’s don’t charge a consultation fee, but will charge commission (which is explained upfront) for any products that are sold. To set up a will through your bank, a drafting fee may apply.

A living trust costs approximately R3500 to set up through a bank. This service is also available through lawyers, though if you’re using a lawyer, make sure s/he has good knowledge regarding financial planning.

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