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Financial Planning

Trusts remain a very useful estate planning tool, if set up and managed properly

The unique feature of a trust is the separation of legal and beneficial ownership. This means that different legal personae hold the legal obligation to manage assets to those who are entitled to benefit from the assets. It is this unique feature that many financial intermediaries and their clients overlook, but which gives rise to the benefits that can facilitate a client’s estate planning and succession wishes.

Benefits of Trusts

Many clients and advisors focus only on the estate duty saving achieved by transferring growth assets to a trust. This potential benefit should never be considered apart from the other tax and non-tax advantages and disadvantages of trusts. The most significant non-tax benefits include the following: The trust’s assets (net of the settlor’s loan claim) are protected from creditors of the settlor, the trustees and the beneficiaries, as well as the administrative procedures (freezing of accounts, and so on) and costs, such as executor’s fees, incurred at death. A discretionary trust caters for flexibility in a way that no other legal entity can. The trustees decide what and how much to distribute to beneficiaries, depending on changes in both the legislative environment and in the beneficiaries’ circumstances. Indeed, trust assets can be vested in a beneficiary or applied for his benefit, without actually being distributed to him. Furthermore, whereas the details of one’s deceased estate appear in the liquidation and distribution account which is filed at the Master’s Office, a trust’s financial affairs are never made publicly available. Many settlors want to know that a competent board of trustees will continue to manage family assets when they are not around. In this way, family members who may not be able or interested in financial matters can be taken care of.

Proper set and management

However, having determined that a trust is appropriate for your client, you need to ensure that the deed is drafted by a specialist and with your client’s specific requirements and circumstances in mind. In addition, you need to ensure that client is advised in relation to the ongoing management and taxation of the trust. We frequently see clients who have set up trusts and never transferred assets to them, or whose deeds are defective, or who do not benefit from the tax advantages, simply because they don’t know how to. We also see potentially crucial errors in template type trust deeds drafted by non-specialists; for example, we have seen trust deeds that do not provide for adopted children, or default beneficiaries, or that grant trustees impermissible powers, or powers that if used, would contravene exchange control regulations, and so on.

In an increasingly complex legal and economic environment, financial intermediaries should avoid trying to be everything to their clients. Estate planning is a highly technical area and intermediaries will refer their clients to specialists where they have their clients’ best interests at heart.

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