Family Trusts

Most people prefer to put their estate in a trust. This is particularly true if you have younger children when you set up your estate. Trusts are also a good idea if you are more affluent. What is a trust? A trust is an effective vehicle to minimise the amount of estate duty, or tax, that you have to pay at death. As they say, two things are certain in life: death and taxes. Sadly for all of us, your estate will get taxed even after your death.

There are two basic kinds of trusts. An “inter vivos” trust is set up during your lifetime. An “inter vivos” trust is generally used to reduce your estate duty liability. This is done by “freezing” the value of an asset at the time it is transferred into the trust. In this way the growth in value of an asset takes place within the trust, and not in your estate.

And a testamentary (or will) trust, which is established in terms of your will and only comes into existence after you die. A testamentary trust is mainly used to protect the interests of beneficiaries in certain situations.

There are a number of reasons, other than tax related, that people may choose to establish a trust. They include when a beneficiary doesn’t have the skills required to manage the asset themselves or if the asset would “perform” better as an asset owned by a single person. This will apply to assets such as shares in companies, land and other more obscure items such as a collection, such as stamps or coins. Keeping the asset intact will allow your beneficiaries to benefit from the income generated by that asset, such as majority shares in a company, which may have been lost if the asset was divided amongst them.

You may also choose to establish a trust to protect your assets from creditors. The assets placed in a trust do not form part of your estate and is generally “off-limits” to the blood sucking parasites. Finally, you may want to protect the incomes of your children until they reach adulthood or the income and care of a mentally or physically disabled child.

When you transfer your assets into an “inter vivos” trust, you can accurately calculate the growth of your assets within your personal estate based on the value of the assets deposited in the trust.