6 ways to use a trust in estate planning

The increased focus on trusts by the SA Revenue Service, as well as revenue authorities abroad, raises the question of whether trusts should still be used in estate planning or not.

Hilary Dudley, managing director of Citadel Fiduciary, says it has become much more expensive to hold assets within a trust.

There are fewer tax planning opportunities now than during the 1970s, when trusts were not subject to tax, Dudley explains. However, in her view, trusts can still be a useful tool within estate planning.

If the trust is formed for the right reasons, it offers benefits such as asset protection and continuity.

Dudley's 6 key benefits of trusts for estate planning:

Access to funds

While a deceased breadwinner's estate is being wound up, it may be difficult for his or her dependents to obtain the required maintenance from the estate.

However, if the breadwinner founded a trust during his or her lifetime, the dependents would have access to a separate source of maintenance that is not affected by the process of winding up the deceased's estate.

An alternative source of income may be a life insurance policy payable directly to the beneficiaries, but this can possibly increase the estate duty payable.

Avoiding curatorship issues

A trust can help individuals who are incapacitated through a disease or disability such as Alzheimer's or senile dementia.

If you have formed an inter vivos trust (a transfer or gift made during one's lifetime) and the bulk of your assets have been placed into trust, then your family's financial well-being will be assured even if you are no longer able to manage your own financial affairs.  

Continuity

By forming a trust and appointing skilled trustees to actively administer assets and provide objective advice and governance, your personal affairs can be managed with minimal attention from you during your lifetime and minimal disruption after your death.

This also reduces the difficulties frequently suffered by heirs who suddenly have to make decisions on matters of which they have little or no knowledge.

Protection

Trusts provide fortification for the protection of assets against attack, for example by business or personal creditors, disgruntled spouses, delinquent heirs and so on.

Save for any assets vested in or a loan owing to an individual, trust assets cannot be attached to satisfy a person's or beneficiary's debts.

Special needs family members

You may wish to form a special trust for the sole benefit of a family member who has special needs, or a mental or physical disability which renders them incapable of earning enough money for their care, or managing their own financial matters.

Individuals who do not qualify for a special trust, but who are practically unable to manage their finances owing to alcohol or drug dependency, old age and so on, may also benefit from the structure, mentorship and oversight provided by a well-governed trust despite not receiving the same tax benefit as a special trust.

Wealth preservation

A well-run trust allows succeeding generations to participate in and benefit from the wealth created in one generation by allowing wealth to be managed and distributed to beneficiaries across generations.

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